The $100-a-barrel oil that Goldman Sachs Group Inc. said would prevail by 2009 may be only a few months away.
Jeffrey Currie, a London-based commodity analyst, says $95 crude is likely this year unless OPEC unexpectedly increases production, and declining inventories are raising the chances for $100 oil. Jeff Rubin at CIBC World Markets predicts $100 a barrel as soon as next year.
"We're only a headline of significance away from $100 oil," said John Kilduff, an analyst in the New York office of futures broker Man Financial Inc. "The unrelenting pressure of increased demand has left the market a coiled spring."
New disruptions of Nigerian or Iraqi supplies, or any military strike against Iran, might trigger the rise, Kilduff said.
Higher prices will increase revenue for energy producers but the United States and other oil-importing nations risk accelerating inflation, while higher energy costs threaten to restrain growth.
Benchmark crude oil futures ended last week at $75.57 a barrel on the New York Mercantile Exchange, up 51 percent since mid-January and twice the level of early 2003. A record number of options have been sold that give the buyer the right to buy crude oil at $100. The contracts, covering 50-million barrels, only pay off should oil go above the target price. September crude futures fell 90 cents to $74.89 in New York Monday.
Currie, Goldman's global head of commodities research in London, is predicting that oil prices will probably touch a record and stay at unprecedented levels for months or years. The all-time high for Nymex crude futures is $78.40 a barrel on July 14, 2006.
"Ultimately, the key to the outlook going forward is when will Saudi Arabia ramp up production," he said. "If you have a situation in which inventories globally get drawn to critically low levels, the volatility in this market is likely to explode, which significantly increases the probability of $100 oil."
Oil might slip to $73.50 if OPEC were to start producing more now, he said.
The Organization of Petroleum Exporting Countries is scheduled to next meet in September. A decision to raise output at that time would lead to greater supplies toward the end of the year.
The failure of near-record fuel prices to restrain global oil demand growth is what concerns Rubin, chief strategist at the brokerage unit of Canadian Imperial Bank of Commerce in Toronto.
"Prices have doubled, and demand is alive and well and accelerating," Rubin said in a July 18 interview. "The argument that rising prices would choke demand and bring increased output is falling to the wayside."
A National Petroleum Council study led by former Exxon Mobil chairman Lee Raymond, released last week, predicted a growing gap between production and demand for oil and gas during the next two decades. As recently as 2005, Raymond said oil prices had probably peaked and dismissed the possibility that supply and demand could not be brought back into balance.
"There are questions about whether the oil industry can keep up with demand," U.S. Energy Secretary Samuel Bodman said last week, commenting on the Petroleum Council report.
Outside the United States, demand increases are being led by India and China, where growing economies mean more cars and trucks ,and more factories that burn oil and gas.
Consumption between now and the end of the year will increase by 3.6-million barrels a day because of seasonal shifts. The rise is equal to the daily production of Kuwait and Oman combined, and it comes after OPEC twice in the past year cut production to support prices.
What's in a barrel?
51.4 percent: finished motor gasoline
15.3: distillate fuel oil
12.6: jet fuel
5.4: still gas
5.0: marketable coke
3.3: residual fuel oil
2.8: liquified refinery gas
1.9: asphalt and road oil
1.5: other refined products