Oil supply response to high prices to stay sluggish - Reuters

Source: Reuters

http://www.reuters.com/article/reutersEdge/idUSL1416872920080421">Oil supply response to high prices to stay sluggish
Mon Apr 21, 2008 11:32am EDT

By Alex Lawler - Analysis

ROME (Reuters) - Oil at over $117 a barrel should
give producers every incentive to pump more, but the
supply response to record prices has been limited and
few predict that will change any time soon.

Supply from outside the Organization of the Petroleum
Exporting Countries has missed forecasts in recent
years, despite a surge in oil prices from $20 in
early 2002.

While oil firms are investing more, much of the boost
is being eroded by rising costs. Access to big sources
of reserves is getting harder and projects are becoming
more complex, increasing the risk of delays.

-snip-

According to the IMF, rising costs for rigs and
shortages of skilled engineers has largely cancelled
out the increase in industry spending. But there are
other factors that are less likely to ease.

"A significant component of these costs is the result
of geological constraints -- a more permanent rigidity
-- implying that the responsiveness of supply to high
prices is likely to remain low for some time," the
IMF said.

-snip-

Read more: http://www.reuters.com/article/reutersEdge/idUSL1416872920080421

April 21, 2008

WORLD oil prices threatened to go even higher after the OPEC oil cartel rejected calls to raise output, analysts said.
“Things are getting hot out there again,” said Dave Ernsberger, Asia director of global energy information provider Platts.

New York's main oil futures contract, light sweet crude for delivery in May, was US8c lower at $US116.61 a barrel after closing at a record $US116.69 on Friday at the New York Mercantile Exchange.

The contract earlier struck an all-time peak of $US117.05.

Brent North Sea crude for June delivery was US1c lower at $US113.91 a barrel after closing at a record $US113.92 on Friday in London. The contract had earlier reached an intraday high of $US114.22.

Over the past week, the New York contract has risen about $US7 and Brent has climbed by more than $US5.50, boosted by a weaker US currency and supply worries.

Mr Ernsberger said prices were likely to shoot even higher after weekend comments by ministers of the Organisation of the Petroleum Exporting Countries. The cartel produces about 40 per cent of the world's oil.

OPEC president Chakib Khelil said there was no need for an immediate increase in crude production because there was a balance between supply and demand.

Saudi Arabia's Oil Minister was quoted as saying there was no need “to get worked up” and call for more oil to be put on the market. Saudi Arabia is the cartel's biggest producer.

President Mahmoud Ahmadinejad, President of OPEC's No 2 two producer, Iran, was quoted on Saturday as saying that oil was priced too low and “should find its real value”.

The comments “raise the stakes for the traders yet another notch,” Mr Ernsberger said, emphasising that this was his personal opinion.

“It's unfathomable to almost everybody why OPEC wouldn't produce as much as it could.”

He said that additional price support was coming from signs that petrol demand in the US was better than expected ahead of the summer driving season, when many Americans take to the highways for holidays.

http://www.theaustralian.news.com.au/story/0,25197,23573499-20142,00.html

I wouldn't go so far as to say "almost everybody" ... there are quite a few
in this forum alone who know *exactly* why OPEC is behaving that way!

On the other hand, we can also see why Ernsberger & co want to keep the
lid on it as long as possible ... time to cash your chips and walk away
from the casino before anyone else notices ...