October 23rd, 2009
03:57 PM GMT
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You would not know that we were in the midst of a sputtering economic recovery when examining the price of oil these days. At around $80 a barrel, which we witnessed this past week, the price of the precious commodity is about $60 above its 20-year average.

New oil finds are promising and seemed to surprise even the most seasoned hands in the business .
New oil finds are promising and seemed to surprise even the most seasoned hands in the business .

The math adds up for the Arabian Gulf producers who are part of what one seasoned energy consultant called the supply management club - OPEC. For all the back seat analysis in the cascade down from $147 to the mid-thirty level, this price recovery to a one-year high speaks wonders about how to manage your assets.

I had a chance to catch up with the core group of oil ministers, senior executives and those who consult the industry at the annual Oil and Money conference in London. Prices are double what they were a year ago, when we did not know whether some of the world’s money center banks would be able to keep their doors open. But, this steady march back to the current level makes a lot of sense.

The OPEC supply management club and a lack of oil are two key elements, but what else is driving this market? Especially when you consider that one half of the world – the East - has recovered while the other half – the West - is in danger, economically speaking, of being parked in neutral?

This requires a two-part answer: one deals with getting access to the giant fields, according to Jonathan Stern of the Oxford Institute for Energy Studies. The other with political uncertainty in countries such as Nigeria, Iran and Venezuela.

“What we are looking at here is really quite expensive oil that you need at least a $40-50 oil price to be confident you will make a decent return on,” commented Stern.

The market was quite excited about new finds in the Gulf of Mexico, off the coast of Brazil, and in Kazakhstan. They are promising and seemed to surprise even the most seasoned hands in the business. The problem is that the older fields in the Middle East and the North Sea, for example, are dropping fast and replacement costs are much higher today than four decades ago.

After the new promising discoveries of the past year, there is less discussion about “peak oil” – where oil production is in steady decline - but the $80 price may be pointing to a new era. “The low-hanging fruit has already been taken,” says Vahan Zanoyan, Chief Executive Officer of First Energy Bank in Bahrain, “After 40 years of this process, it is not surprising that all of what is left are the tough ones.”



soundoff (49 Responses)
  1. ryan

    It's 'cause of the weakening dollar.

    October 23, 2009 at 5:23 pm |
  2. Ravi

    The rising oil price isn't surprising given the fact that the Gawhar mega oil field in Saudi Arabia, the worlds largest, is well past its peak output and is declining at the rate of 8-10%. The supposed "new finds" at the south edge of Gawhar don't add up the scratch when compared with the depletion rate in the main oil field. Further, the Cantarell oil field (Mexico), the second largest in the world, is declining at the rate of about 10 %. Overall, output from the worlds known major oil fields is declining at the rate of around 10% (a conservative estimate). Indonesia has gone from being a net oil exporter to an oil importer. The Saudi's recently asked for subsidies on account of theirdwindling oil reserves. Oil supplies from the Central Asian States will be in continual jeopardy owing to the unrest and instability in Afghanistan and Pakistan, which has no end in sight. These factors will certainly dampen and perhaps even even reverse any forseeable or hoped economic recovery.

    October 23, 2009 at 6:50 pm |
  3. Think Tank

    It's amazing how the U.S. gov and some media (e.g. the writer) avoid the issue of the falling dollar as the main cause of the surge in oil price. It seems to me that Americans are being brainwashed to think that a weaker dollar is good for them when they are actually being eroded of their actual wealth. Irony...

    October 23, 2009 at 10:06 pm |
  4. hosam mahmoud

    The price of oil is not up it is actually down. First you drop the price by speculations , then you drop the value of the dollar. Arabs may be ignorant but they are not fools.

    October 23, 2009 at 11:09 pm |
  5. Annonymous

    Really, but this does not explain a rise in $10 per barrel in one week. Seems we've allowed speculators to take over again. This really sucks.

    October 24, 2009 at 2:13 am |
  6. vadim

    Algae plus solar energy
    allow to avoid stupid behaivour of Venes., Russia etc.

    Lack of money means predictability.

    The World will be more dangereless.

    Have a nice Day!

    October 24, 2009 at 4:18 am |
  7. George

    A lot of comments are zeroed in on the fact that some major oil fields are declining – if the fields are declining why is it that the Arab nations are increasing refining capabilities by building mega billion dollar plants? I think the whole world is being brainwashed by the Arabs into thinking that there is a shortage of oil. Not so – new finds and continued low pumping allowance by OPEC continue to drive up he price of oil and non oil producing nations stupidly follow along like a string of cattle that all walk the same path. Do not attempt to question the price of continued oil supply coming of the mid east, just follow along. Let them deplete even further your spending power and standard of living. The Arabs need the extra money to continue to build play grounds for the well to do while the rest of the world loses money due to the increase in oil and gas. Just follow.

    October 24, 2009 at 5:23 am |
  8. Headake

    the zero interest rate policy, the quantitative easing policy of Mr. Bernenkey as well as the huge deficit are what's driving commodities and oil to higher levels. The US might loose it AAA rating if they continue on this pass. The US needs higher savings not higher consumption. Stupid policy makers...

    October 24, 2009 at 5:24 am |
  9. nathan wolfson

    The price of oil is due to one word: speculation. Take the cost of production (about $20 a barrel) and add transportation and admin costs and you get what the real price should be, about $30-$35 a barrel. Certainly, the price should never go above $50 a barrel. One only need look at the profits of "big oil" to see how we're being "hosed." The system is broken, and nobody wants to fix it. Our only salvation will be when most cars become electric-powered and the oil companies won't be able to give their product away.

    October 24, 2009 at 7:33 am |
  10. Awareofthegames

    Attacking Iran either USA or Israel = Final blow of economic crisis for the world.

    October 24, 2009 at 11:52 am |
  11. Uzair

    Our treasured economic systems ensure that we end up shooting ourselves in the foot again and again. Speculation should be labeled as a human rights violation and prosecuted as such!

    October 24, 2009 at 12:18 pm |
  12. whoever

    Yes oil prices have risen and the dollar has fallin.

    But why do you think the american government is in Iraq?
    They are allover the middle east region and they are a reason to the change in oil prices.

    Do you actually think they are just there watching prices go up and down without doing anything.

    October 24, 2009 at 12:30 pm |
  13. eddie

    If the money that has gone into wars and subsidies for major US corporations are channelled to develop the infrastructure for solar energy, research and subsidies, then oil prices will come down to below $60 again.

    America lacks the leadership to take control of its energy policies.

    October 24, 2009 at 12:31 pm |
  14. Oil Industry Executive

    Peak Oil, Peak Oil, Peak Oil

    This is all nonsense and if you follow the original predictors of peak oil we are well past the oil supply and into the oil supply decline. Yet the world continues to demand more from oil and the supply meets the demand.

    This is very simple economins. The oil countries play with the supply and demand is fairly consistent to growing depend on how you look at it and we as a world have been lazy. So the producers take advantage.

    New Technologies gas to fuel conversions, shale with oil extract are all coming into play and the pressure on the automotive industry is a starting point for the world to start playing samrter with it resources

    Please give up the peak oil gripe, it is well past it's use by date and the world has moved on and left those particular doomsdayers licking their wounds and wondering why the world has oil. If you actually pay attention and see what has come now the oil companies are being forced to do some work, the supply issue is not a playing card.

    This is classic supply demand and the Arab world has held the trump cards for quite some time, but also got much smarter at playing the game with the world markets and keeping prices up by using all sorts of properganda, rising extraction costs, rubbish. Poor management of the propreitory management companies on the ground and I could go on and bore you all to death........

    October 24, 2009 at 2:08 pm |
  15. Per Holmlund

    Only a new recession

    If we look at the longer chart it is easy to recognize a major trend shift when the oil broke the 40 level back in 2004. A trend brake driven by fundamentals and not by speculation. With hundreds of millions of new consumers in countries like Brazil, Russia, India, China… demand created a shift that wasn’t expected by too many. I remembered meetings in Beijing in 2004 where the story was that China had alternatives when they were told of oil at 80.

    We know what happened! Overshooting and wild speculation with Chinese chasing oil companies at the top. And then we got the collapse when the world wide depression hit and speculative positions were liquidated. From boom to bust and now things are trying to go back to normal, a positive trend that can take oil to 100 if economies improve.

    And then a new recession and why not a depression that takes oil down as it did 1983 to 1986. A depression caused by deficit swaps and a downturn of the Chinese industrial mega cycle. Oil will break down again and the break down will get extra fuel from a mountain of investments in new, alternative and nuclear energy.

    But so far so good. Don’ fights the trend as long as leading indicators are improving. Bee happy and live this cycle. Tomorrow is another story and in the long run we are all dead.

    October 24, 2009 at 2:30 pm |
  16. Carlos

    It's called fund buying!

    Large spec funds are buying again oil, just like they did before the crisis when we reached $150. while 25% of refining in the US is idle due to lack of demand.

    As long as the Bush relax on speculators participation levels on markets stays, you will see this behaviour.

    As for the weak dollar, take into account that it also means a weak yuan since the chinese keep their currency pegged to the dollar, and China's demand keeps growing

    October 24, 2009 at 4:03 pm |
  17. molly

    Good. At $80 a barrel, the world finally can resume the serious business of developing alternative sources of energy.

    October 24, 2009 at 4:27 pm |
  18. gogo

    It is simple. number of people is increasing, resources of oil and gas are decreasing. I do not need economical education to forecast the cost of oil in future.

    October 24, 2009 at 5:52 pm |
  19. JPB

    How much food products does the United States sell OPEC?

    We should reciprocate with similar prices!!!

    October 24, 2009 at 6:02 pm |
  20. Samoht

    $80/barrel is just the beginning. Several factors overlap: falling US$ against commodities, stocks and foreign currencies, growth in China, falling Oil supplies, falling Oil investment. You add this up and the price of Oil in US$ can only go up. In fact the US$ as a measure of value of commodities is loosing its appeal. What good is a yard stick that's shriveling away.....

    October 24, 2009 at 8:35 pm |
  21. your mom

    Well it's all bs if the the prices are estimated costs from "those parties" that have the most to gain from gauging us isn't it? Not to mention the rabs sticking it too us for sticking are noses in their affairs for the last 20 years, and starting 2 wars over there lately.

    noooo... that couldn't be the reasons!

    October 24, 2009 at 10:30 pm |
  22. lou

    A long time ago someone told me that US policy was to import all the oil it could for as long as it could until the MidEast fields dried up, then open the spigots here on our untapped oil and thereby run the world.

    It might have been a good strategy, but now we're borrowing so much money we can't pay back, the guys lending to us will encumber our oil assets in the future to repay their loans. So much for long term thinking.

    October 25, 2009 at 2:44 am |
  23. dollarwatch

    the rise in oil prices is being caused by a weak dollar. peak oil is not a factor in the current price increase we're seeing. and countries with strong currencies are not paying more in real money for oil. they are paying less.

    October 25, 2009 at 4:43 am |
  24. Sack

    It’s because the money mongers are not making the money they were. Now they put a new spin on why the price has to be raised and are now trying to make money. It’s all a sham and the little man will get littler ..........smaller........smaller........poor..........

    October 25, 2009 at 5:08 am |
  25. Aka

    Well,

    Americans please reduce your consumption. You guys are sucking like blood sucking parasite. You want to get all worldly luxuries. Only sufferers will be poor in your nation and around the world. Because rich can afford everything. War is not between rich and poor. Americans are fucking with everyone, you have no business outside Americanos. Take your noses out of everything. World dont need you. Enjoy shitty baseless balls.

    October 25, 2009 at 7:15 am |
  26. b gee

    The sooner Mid East oil is used up, the faster terrorists will run out of funding. So, I say, fire up those Hemis and Hummers. We WILL have alternative energy sources AS SOON AS the oil is gone.

    Global Warming? What me worry? I'm not a desert nomad. This planet has been going thru cycles of Ice Ages and thawing for MILLIONS OF YEARS. Turning off a lightbulb now will NOT stop it. It is like urinating on the beach to make the sea level rise. It's a drop in the ocean.

    October 25, 2009 at 11:38 am |
  27. l.shekar

    My view on the crude price it is likely to touch $ 162 by 2010.

    Regards

    L.SHEKAR
    PRISTINE ADVISORY SERVICE PVT LTD

    October 25, 2009 at 1:44 pm |
  28. Headake

    he zero interest rate policy, the quantitative easing policy of Mr. Bernenkey as well as the huge deficit are what's driving commodities and oil to higher levels. The US might loose it AAA rating if they continue on this pass. The US needs higher savings not higher consumption

    October 25, 2009 at 4:57 pm |
  29. Denver Morgan

    there is no shortage of oil the world has a lot of oil its just being controlled by people who want to make money and they know exacly how to do it

    October 25, 2009 at 8:08 pm |
  30. Larry in Amarillo TX

    The real reason oil is heading back, espcially considering the peak driving season (ehem) that North America is heading into with winter coming on and all is because a butterfly farted in Africa. Everytime that happens a consultant gets worried about oil supply and the price jumps.

    October 26, 2009 at 4:01 am |
  31. Vinod

    Low interest in the market does not augur well for the companies. Many companies are under the financial control of the governments. There are no real buyers in the market. Oil, Gold , commodity prices and Stocks are being taken upwards to improve their profitability by these companies to cover up the losses being made in their core buisnesses. If they make profit by hood winking the governements they can be out from their control soon. How else doe you expalin the prices of these items increasing when the consumers around the world are cautious about buying anything. Banks are only willing to lend selectively, so where is this money coming from? It is a matter of time before these market players pull down the market to earn profits from the inflated markets.

    October 26, 2009 at 6:24 am |
  32. Robert Smith

    Deplete deplete deplete...

    Please use as much oil as you can....

    When oil is finally depleted and alternative energy source are brought on-line there will be a wealth of technological advancements which will "fuel" the whole world.. and the OPEC countries will become less interesting than the weakest of Africa's anonymous countries.

    October 26, 2009 at 8:33 am |
  33. Philippe Clark Castan

    One must also consider the fall of the USD with respect to the Euro and several other strong currencies, so really the price denominated in USD is not that high.

    October 26, 2009 at 11:39 am |
  34. hashim hussain

    In this race, black is going to take over yellow. Not in too distant future, you will see the price of 'black gold' (Oil) go over the price of yellow Gold.

    And when that happens nominate me for the noble Peace Prize in Economics. Hashim Hussain

    October 26, 2009 at 11:57 am |
  35. Dalmo

    America is hanging itself up.
    They are putting bullets (money) in Arabs hands.
    America consumes most of the world oil, it should do what it does best, Research & Development.

    Major point is to get electricity alternatives:
    1. Right now to obtain cheaper solar cell are very close, by making them straight from pure quartz.
    2. In the long run an Hydrogen nuclear reactor holds the promise to a future clean nuclear energy.
    3. Hydrogen can be used as fuel, in a internal combustion engine. To store it in a safer manner still a problem. A magnesium sponge might be a solution.
    4. A hydrogen fuel cell holds the promise of a great electric vehicle.

    All this require lots of research, meaning good heads and lots of money.
    No company in the world has such "power" and time for this task.
    This was the force of America, before it looses its track.

    God bless America!

    October 26, 2009 at 1:21 pm |
  36. Don

    I think it is time the US goverment steps in before the greed within the oil companies distroy the US economy. I do not but the weakening dollar excuse.

    October 26, 2009 at 5:56 pm |
  37. Ravi

    Oil Industry Executive: You're correct about gas to oil conversion and shale oil. Vested interests have stymied research in making the extraction and processing of kerogen (shale oil) more efficient process-wise, environment-wise, and cost-wise. Examples of these are in-situ capture-conversion and carbon capture and storage. Furthermore, strategies to tackle the environmental effects associated with kerogens like greenhouse gas emission and waste disposal can be substantially mitigated by intensified research and proper planning.

    On the other hand, the problems associated with open pit mining and groundwater pollution will remain serious drawbacks in using kerogens, and need to be addressed in a technically sound manner. Needless to say, there's precious little being done to address many if not most of the above stated issues. There's plenty of shale around in "stable" parts of the globe to largely delink the world energy supplies from the Middle East and its politics. I guess its just the will that is lacking!

    October 27, 2009 at 2:37 am |
  38. Eric

    This is a serious but relaxing issue. Take it serious in the short term, but forget it in the long term.

    Remember we have been working on energy since human came up in the nature. We will continue to live if you want to live.

    October 27, 2009 at 5:28 am |
  39. gogo

    I lived through communism and I tell you, that goverment should not push nose into economic at all. at all. what I can see now is that americans are loosing selfconfidence. goverment can not solve economical problems. every stimulous packages are bullshit. just let the crisis do its job. crisis is not a reason of economical problems , crisis is the solution of econimical problems.

    October 27, 2009 at 10:52 am |
  40. José

    It is true that the falling dollar has a major effect on the price of oil. That being said, I guess no one remembers the very words that came out of OPEC back when oil was at it's more reasonable price of $35 a barrel (and it should have been lower!)? They said they wanted oil to be traded between 70 – 80 dollars. And look, some magical fairy has decided to bequeath unto them their wishes. How ever on earth could this happen?

    Meanwhile oil stocks are so plentiful that they have to keep it all stored in huge tankers out in the ocean so they can wait for the prices to be more to the tune of making a perverse profit and then let it flow to all us ignunt artards.

    The price of gas is what sent this economy spiralling down. It's effect on companies and their ability to continue to make profits made them either downsize or fail. Less people working = more foreclosures – most people who have a job don't always stop to think if they will still have a job in 10 years. They just hope they will. Will YOU have a job in 10 years? So no jobs because no profits and down goes the economy. But we will soon discover that since the GR was caused mostly by a lack of confidence causing a loss of jobs, the reverse will also be true (to a degree). The new normal unemployment rate will probably hold around 7%. There's just not enough jobs to pay for 9 gazillion people all wanting to live in their own 3500 acre ranch with 40 rolls royces and 72 virgins all with 900 kids. We are reproducing ourselves back to slavery, if not to total self-destruction.

    October 29, 2009 at 3:01 pm |
  41. bernadine

    It is really time to look to alternative fuel and how to produce them cheap to be econimically viable.
    Electricity can be harness from a lot of natural resources; ocean wave, water, wind, natual gas, sunlight, etc. The key thing is to build cheap machines to harness these source of power and convert them into usable energy. In this age of technology, this should not be hard if one is motivated enough.
    Electricity can also power cars if small batteries with big enough capacity can be build.
    Fuel from corn, sugarcane, used cooking oil. Maybe we can go fo generically altered plants but strictly for fuel conversion only and not human consumption. One big problem would be to control cross polenation or isolation of these altered plants so they will not contaminate / breed with the naturally grown plants.
    Bottom line is, US should be leading this since we have all the technology available here.
    These new energy alternatives will not only free our dependency from oil but new machine exports will definitely help economic growth.

    October 29, 2009 at 8:17 pm |
  42. Shan Saeed

    We have to analyze the average oil price from 2001

    STRATEGIC INSIGHT ABOUT OIL
    Oil
    Average prices of oil from 2001 to 2009
    2001 $23/barrel
    2002 $22/barrel
    2003 $27/barrel
    2004 $37/barrel
    2005 $50/barrel
    2006 $58/barrel
    2007 $64/barrel
    2008 $91/barrel
    2009 $51/barrel to date

    Oil will be touching $87/barrel by Dec-2009.....If we look at the key drivers that making this oil prices to sky rocket again
    1. Weak Dollar
    2. Global economic recovery.Its a U-Shaped recession..Could have gone to W-Shaped recession
    3. Demand side is outstripping the supply side from Asia esp. China
    4. Supply Disruptions from chronically bad boys of the oil market Iran/Nigeria or Venezuela cannot be ruled out
    5. Saudi /Russain/Iranian want a floor of $75/barrel for oil prices

    Oil is on its way to $100/barrel going forward and it will not stop there. Its like a train coming at you and you are not going to tops it by standing in its way.

    Shan Saeed
    Economist
    Graduated from
    Uni. of Chicago

    October 30, 2009 at 4:39 am |
  43. oil industry executive

    Here is a insight on the ground of teh realties of what is happening today.

    And OPEC are toothless tigers that potray that have control over the supply levels, who are they kidding when you see what happens in the oil fields

    I run a large oil supply company that worls directly with the rig owners. Now when oil got to $50/barrel last year on the slide the supply of key support products such as mud & chemicals for drilling as well as pipe etc.... all of a sudden had a problem in all the major oil markets all at about the same time. Rig companies were all told to do long overdue maintenance and the Saudis just laid up rigs rather than moving them onto new locations. I cannot geive you exact numbers but what I can give you is an indicatiion. That a country that has to increasethe number of wells to mainatin its current oil outputs actually reduced the number of wells over the last 12 months significantly.

    But yet there were no major cuts announced by OPEC per say. So lets get it right and lets all give OPEC the respect they deserve, NONE.

    To the orginal point the Arabs control the supply and as per some other writers points they want $100/Barrel and control the markets to keep it at that.

    They do not care at all the world is sucking a sardine right now as they continue to rake in billions for their palaces and lavish lifestyles. But that rolls onto the next point. Part of teh economic recovery is linked to oil and its high price as it keeps Asia from steaming back into the lead seat immediately giving Europe and Americas some breathing space (America needs all it can get).

    But the Arabs do nothing for themselves so when a new airport is built it is done by a Western or Asian contractor, new road infrastructure same same same.

    So again the world will find a way and the money will come back on line we will see maybe the Chinese this time driving the Ferraris instead of the Americans and then they will get caught out by high costs and changes in demand, which has started in the major cities and the world then returns to the same cycle and we see someone else have their turn.

    This is history doing the famous repeating itself just nowadays we are all better informed and all have bigger opinions, me included as can be seen by this babbling

    November 1, 2009 at 7:11 am |
  44. Adrian

    Don't mean to ut a crimp in the assessments of oil availability here but...don't forget "unconventional" sources of oil. There's more retrievable oil the oilsands of Alberta, Canada, than existed in conventional oil reserves in Saudi Arabia.
    If you add oilsands, and shale oil deposits, which can be retrieved using current technologies and ARE being retrieved economically with oil in the $60-$80/barrel range...there's little reason for oil to go higher than $80.

    Years ago the Opec nations dropped the price of oil so as to avoid competition from nonconventional sources but now they're needy for cash, and can't pinch the valves off as much as they once could. So now it is economical for deep-drilling, oilsands, and shale oil deposits to be retrieved.

    Want proof? A year or so ago shale-gas was a nonexistent player in natural gas reserves and production. It was considered too expensive, and unconventional, to be an impactor on the industry. Now shale-gas has come onstream big-time, and can be economically retrieved at $3-$5 GJ.

    Only reason oil should go beyond $80 is if the dollar continues to tank, or that large pool of investor money that's looking for a place to park decides to park in oil again, creating another unsustainable bubble.

    November 2, 2009 at 4:29 am |
  45. Sarah Graham

    solar cells these days are not yet very efficient in generating electricity'~*

    October 6, 2010 at 6:21 am |
  46. Caramoan Philippines 

    amorphous type solar cells are the cheapest option that we cant get if we want solar power.*-

    October 20, 2010 at 11:09 pm |
  47. Bench Saw ·

    even with the price drop, solar cells are still quite expensive if you want to get more than 500 Watts "

    November 9, 2010 at 6:32 pm |
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