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    • Fri Jul 18th 11:47 AM | Rating: 0 0
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      The Oil Bubble Will Meet the Same Fate as Tech, Housing
      Countries outside the Opec oil cartel will barely be able to increase their production of crude oil over the next five years for the first time in the industry’s history, the western countries’ energy watchdog warned yesterday.

      The International Energy Agency’s dim forecast to 2013 suggested record oil prices have yet to balance sluggish supply with relatively robust demand.

      “Structural demand growth in developing countries and ongoing supply constraints continue to paint a tight market picture over the medium term,” the IEA said in its Medium-Term Oil Market Report.

      Despite billions of dollars of investment, the challenge of pumping ever more oil out of ageing fields is proving so great that non-Opec countries will, in the next five year, have to rely on bio-fuels, such as corn-based ethanol, for 50 per cent of their growth in overall fuels.

      The IEA said annual non-Opec supply growth, including biofuels, would slow to 0.5 per cent between 2008 and 2013. But demand, supported by rising incomes in developing countries such as China, would grow by 1.6 per cent a year.

      Analysts warned the new forecast meant the world economy would rely more on Opec and oil prices were likely to remain elevated.

      “Poor supply-side performance . . . in the face of strong demand pressures from developing countries has forced oil prices up sharply to curb demand,” said the IEA.

      Crude oil prices moved more than $3 higher to $143.33 a barrel as the market digested the forecast. The IEA said that current prices, which hit a record high this week of $143.67 a barrel, were “justified by fundamentals”.

      The fast decline of fields - especially in the North Sea and Mexico, where production is shrinking by more than 20 per cent each year - means that 14.8m of the 16m barrels of new supply from non-Opec countries over the next five years will only go to make up for losses from old fields producing less each year. Stagnant oil output in Russia is another key factor in lower non-Opec supply growth.

      Nobuo Tanaka, executive director of the IEA, said in an interview: “In non-Opec countries we want to see more access to resources and more transparency of the legal system because we believe that . . . the underground resource is still there; the problem is above ground.”

      Opec, meanwhile, is also struggling, with project delays constraining its ability to add new capacity. The IEA substantially downgraded its expectations for Opec crude capacity from 2008-2013, cutting earlier forecasts by 1.2m b/d.

      The IEA said it believed Saudi Arabia was having bigger problems than the kingdom, the world’s largest exporter, was willing to admit to.

      These fluctuations in oil supply come as demand growth is continuing, especially in the developing countries, whose oil needs are expected to have almost caught up with those of the rich world by 2013.

      Copyright The Financial Times Limited 2008
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