[Marxism] Oil's Run Is Likely to Keep Fast Clip

Walter Lippmann walterlx at earthlink.net
Fri Mar 4 04:55:42 MST 2005

("The continued weakness of the dollar also has set the stage
for increases, because oil is priced in dollars around the
globe, and a weaker dollar means less revenue per barrel
for oil producers.")

March 4, 2005
Oil's Run Is Likely to Keep Fast Clip
Price May Top $60 or More
If Supplies Are Disrupted
And Demand Fails to Cool

March 4, 2005; Page A3

The big oil-price spike of 2004 looks increasingly likely
to get a sequel.

As oil prices approached a new high yesterday, industry
analysts said they are anticipating price increases to more
than $60 a barrel this year. Some analysts are even
beginning to talk of the possibility of greater increases
-- to $75 or $80 a barrel -- in the event of a major supply
disruption, unless red-hot demand for crude cools in Asia
and the U.S.

Unlike last year, when rising prices sparked protests in
the U.S. and elsewhere, opposition to the increase has
become quieter as businesses and consumers have become
accustomed to more expensive oil.

Yesterday, the acting secretary general of the Organization
of Petroleum Exporting Countries, Adnan Shihab-Eldin,
acknowledged in remarks to journalists the possibility of
prices rising to greater levels if supplies are disrupted,
suggesting the cartel believes it has a limited ability to
curb world oil prices. Talk of a renewal of last year's
run-up in prices comes as OPEC's energy ministers prepare
to meet in Iran on March 16. While they could raise
production quotas, OPEC already is pumping close to

U.S. benchmark oil shot above the previous settlement high
of $55.17 a barrel in intraday trading on the New York
Mercantile Exchange yesterday before retreating. Futures
for April delivery settled at $53.57 a barrel, up 52 cents,
after hitting as high as $55.20. On an inflation-adjusted
basis, oil is still well below highs of about $90 reached
in the early 1980s.

Like last year, growing world demand -- particularly from
the U.S. and China -- underlies much of the price increase.
The continued weakness of the dollar also has set the stage
for increases, because oil is priced in dollars around the
globe, and a weaker dollar means less revenue per barrel
for oil producers.

The current surge in prices also comes amid realizations by
OPEC nations and oil traders that higher prices have had a
limited impact on world economic growth. While costlier
energy has been a significant drag on relatively weak
economies such as Japan and Germany, higher prices haven't
been enough to derail recoveries in the U.S., China and
other more-vigorous areas. With the world showing signs
that it can withstand higher energy prices, there has been
little evidence lately to suggest that either oil producers
or big consumers are trying to cap the latest run-up.

"There is no fear of high oil prices," said Phil Flynn, an
analyst at Alaron Trading Corp. in Chicago. "That's what
scares me the most." He noted that Federal Reserve Chairman
Alan Greenspan hadn't even brought up the issue of oil
prices in Senate Budget Committee testimony on Wednesday.

Energy Secretary Samuel Bodman told a Senate panel
yesterday that "the capability of any member of this
government to influence the members of OPEC is limited."
Mr. Bodman also suggested he had other priorities. "I have
a lot on my plate," he told the Senate panel.

The current run-up still could further hurt those
economically weak nations, as well as energy-sensitive
industries such as airlines and auto makers. European
Central Bank President Jean-Claude Trichet yesterday cited
oil prices as one threat to economic growth.

The latest surge in prices was triggered by refinery
shutdowns in the U.S. on Wednesday and a growing belief
among many investors that OPEC isn't about to increase its
production. Stockpiles of crude oil in the U.S. posted
another increase this week, suggesting that OPEC wouldn't
see a need to boost supplies when it meets this month.
OPEC, led by Saudi Arabia, has made clear that its supply
decisions are based in large part on making sure that
inventories levels in major consuming countries don't rise.

As industry analysts pore over demand and supply numbers,
they also realize that OPEC has very limited ability to
intervene. This vulnerability in the global supply chain
became evident last year, when OPEC was producing at nearly
maximum capacity to meet demand. With demand continuing to
rise this year, analysts reckon OPEC once again will be
tested in the spring, as the U.S. driving season begins to
use up large volumes of gasoline and as refiners struggle
to keep up with demand for gasoline, diesel, jet fuel and
other products elsewhere.

"I would not be surprised at all if prices spike past $60
[a barrel] in the third quarter, or in the next few weeks
before the OPEC meeting," said Deborah White, an oil
analyst at Société Générale in Paris.

Ms. White said the blow to consumers could be much heavier
if there is a major crude-supply outage -- which she
defined as two million barrels a day, about what Iraq
produces on a good day -- or if 500,000 barrels a day of
refinery capacity is lost. In such scenarios, "the sky is
the limit," Ms. White said. "That means spikes to $75, $80
a barrel."

The world currently consumes more than 84 million barrels a
day of oil. Rising overall demand and seasonal surges are
expected to lead to global consumption of nearly 88 million
barrels a day in the fourth quarter this year, a level of
demand that refineries, making a whole slate of oil
products, may be hard-pressed to meet. OPEC currently is
producing 29 million barrels of oil every day, roughly a
third of world supply.

Ms. White and other analysts figure OPEC has extra pumping
capacity to replace only as much as one million to 1.5
million barrels a day of crude supply lost elsewhere
because of accidents, strikes, wars or other reasons.

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