A string of flowline sections traces the route that Arabian Extra Light crude oil will flow in the remote Shaybah field to onsite, gas-oil separation facilities in Saudi Arabia Photo: Saudi Aramco

Crude oil rose to another May record above $135 a barrel in New York on supply worries after US inventories unexpectedly dropped last week. Meanwhile, the International Energy Agency, the energy adviser to 27 developed countries including Ireland, is reported to be preparing a sharp downward revision of its oil-supply forecast, a shift that reflects deepening pessimism over whether oil companies can keep abreast of booming demand.

Crude oil for July delivery rose as much as $1.87, or 1.4% to $135.04 a barrel in after-hours electronic trading on the New York Mercantile Exchange. It later retreated to $134.27 a barrel, up $1.10 from Wednesday's close.

Oil for near-term delivery has surged 8.5% in the past week, while futures contracts for 2016 rose $20 to $142 a barrel.

Brent crude oil for July settlement rose $1.80, or 1.4% to a record $134.50 a barrel on London's ICE Futures Europe exchange.

US crude inventories fell 5.32 million barrels to 320.4 million barrels last week, the biggest fall in four months, the Energy Information Administration (EIA) of the US Energy Department said yesterday

Goldman Sachs analyst Arjun N. Murti said last week that ``the possibility of $150-$200 per barrel seems increasingly likely over the next six-24 months.'' Murti first wrote of a ``super spike'' in March 2005, predicting crude may trade between $50 and $105 a barrel through 2009.

On Wednesday, US oil company executives told a Congressional hearing that oil prices should be between $35 and $90 a barrel. Representatives of  BP Plc, ConocoPhillips, Chevron Corp., Exxon Mobil Corp. and Royal Dutch Shell Plc appeared before the Senate Judiciary Committee to testify on record energy prices.

The price of oil should be ``somewhere between $35 and $65 a barrel,'' John Hofmeister, president of Shell Oil Co., the Houston-based subsidiary of Royal Dutch Shell, said. Other executives said prices should be as much as $90 a barrel.

“As repetitive and uninteresting as it may sound, the fundamental laws of supply and demand are at work,”Hofmeister also said. “Oil exporting nations, as has been said, are managing their natural resource development and production to supply their local and global markets in their own self-interest.”

Russia's Peak; Saudi Arabia halts capacity expansion

Russia’s oil production declined almost half a percentage point in April, the first drop in a decade from the world’s second biggest oil producer, whose output was growing at a rate of 12% just five years ago. Leonid Fedun, vice-president of Lukoil, told the Financial Timesthat the country’s production may have already reached its peak.

Saudi Arabia, the world’s biggest oil producer, is reported to have put on hold plans to increase the kingdom’s production capacity. Ali Naimi, Saudi oil minister, said the demand forecasts he was reading did not warrant an expansion past the 12.5 million barrel/day capacity Saudi Arabia’s fields will reach next year. King Abdullah said: “I keep no secret from you that, when there were some new finds, I told them, ‘No, leave it in the ground, with grace from God, our children need it’.’’

The Oil Transition

International Energy Agency Forecast

The Wall Street Journal reports today that the world's premier energy monitor is preparing a sharp downward revision of its oil-supply forecast, a shift that reflects deepening pessimism over whether oil companies can keep abreast of booming demand.

EIA: Stocks (Million Barrels)
Stocks		Change From Last
05/16/08		Week	Year
Crude Oil	320.4	-5.4	-23.8
Gasoline	209.4	-0.8	12.7
Distillate	107.8	0.7	-12.5
Propane	34.028	2.725	1.120

The Journal says that the Paris-based International Energy Agency (IEA) is in the middle of its first attempt to comprehensively assess the condition of the world's top 400 oil fields. Its findings won't be released until November, but the bottom line is already clear: Future crude supplies could be far tighter than previously thought.

The decision to rigorously survey supply -- instead of just demand, as in the past -- reflects an increasing fear within the agency and elsewhere that oil-producing regions aren't on track to meet future needs.

"The oil investments required may be much, much higher than what people assume,"said Fatih Birol, the IEA's chief economist and the leader of the study, in an interview with The Wall Street Journal. "This is a dangerous situation."

The Journal says that the findings won't be definitive. Big producers including Venezuela, Iran and China aren't cooperating, and others like Saudi Arabia typically treat the detailed production data of individual fields as closely guarded state secrets, so it's not clear how specific their contributions will be. To try to compensate, the IEA will use computer modeling to make estimates. It will also collect information gathered by IHS Inc., a major data and analysis provider based in Colorado, as well as the US Geologic Survey, a smattering of oil and oil-service companies, and national petroleum councils.

 Last November, the IEA said its analysis of projects known to be in the works suggested that the world could face a shortfall by 2015 of as much as 12.5 million barrels a day, unless there was a sharp drop in expected demand.

The US Energy Department's EIA suggests daily output of conventional crude oil alone, now about 73 million barrels, will plateau at 84 million barrels, and that it will take a significant uptick in production of nonconventional fuels such as ethanol to push global fuel supplies over 100 million barrels a day by 2030.