Photos: World's thirst for oil

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  1. Spilled crude oil is seen near Bodo, Nigeria, on June 24, 2010. Bodo villagers have sued Shell over two recent spills, and the company in July 2011 agreed not to oppose their efforts to have the claims heard in a British court, which could expose Shell to greater financial damage. A U.N. report released on Aug. 4, 2011, said oil pollution in the Niger Delta would take 30 years to clean up and that the initial tab could be $1 billion. (Pius Utomi Ekpei / AFP - Getty Images) Back to slideshow navigation
  2. Greenpeace activists climb ladders on the Leiv Eiriksson drilling rig, operated by British oil explorer Cairn Energy, 112 miles off the Greenland coast, on June 4, 2011. Greenpeace activists were removed from the rig after suspending themselves from the Leiv Eiriksson, but days later, some 18 activists boarded the Leiv Eiriksson and were taken to meet the drill manager. (Steve Morgan / Reuters) Back to slideshow navigation
  3. An oil tank burns in the port of Gibraltar on May 31, 2011. The cruise ship Independence of the Seas was nearby but pulled out to sea for safety. (Douglas Cumming / AFP - Getty Images) Back to slideshow navigation
  4. Pedestrians run from the scene of a fire ravaging four fuel tankers on Lagos's Ibadan highway on May 11, 2011. Two people lost their lives after two tankers loaded with fuel collided and the ensuing blaze spread to two other tankers on the Lagos-Ibadan highway, a gateway to other parts of the country. The accident stalled traffic around Lagos. (Pius Utomi Ekpei / AFP - Getty Images) Back to slideshow navigation
  5. An aerial view of an illegal oil refinery Ogoniland outside Port Harcourt in Nigeria's Delta region on March 24, 2011. Crude oil thieves -- known locally as "bunkerers" -- have been a fact of life for years in Africa's biggest oil and gas industry, puncturing pipelines and costing Nigeria and foreign oil firms millions of dollars in lost revenues each year. (Akintunde Akinleye / Reuters) Back to slideshow navigation
  6. Mammoet Co. workers move a reduced-size megaload, carried on 18-axles remotely controlled, into a new storage yard at the Port of Lewiston on May 9, 2011 in Lewiston, Idaho. Several dozen of the large modules of oil-processing equipment will be stored there, awaiting permits to be transported on U.S. Highway 95 through Moscow to the Kearl Oil Sands project in Alberta, Canada. (Barry Kough / Lewiston Tribune / AP) Back to slideshow navigation
  7. NATO oil tankers in Karachi, Pakistan prepare to depart for Afghanistan on May 3, 2011. According to official figures, 80 percent of NATO supplies are transported to Afghanistan via Pakistan. (Rehan Khan / EPA) Back to slideshow navigation
  8. A laborer carries an empty oil container at a wholesale fuel market in Kolkata April 7, 2011. India's fuel price index climbed 13.13 percent in the year to March 26, government data on Thursday showed. (Rupak De Chowdhuri / Reuters) Back to slideshow navigation
  9. Natural gas storage tanks burn at the Cosmo oil refinery in Ichihara city, Chiba Prefecture, near Tokyo March 11, 2011, following the massive 8.9 magnitude quake. (Reuters) Back to slideshow navigation
  10. A Filipino vendor arranges bottles of gasoline and engine oil sold at a roadside stall in Quezon City, eastern Manila, Philippines on March 2, 2011. The Philippines is aiming to increase its current inventory of crude and other oil products as part of measures to manage the impact of the continuing political unrest in the Middle East and north Africa, according to the government's energy department. World oil prices are being affected as Libyan leader Muammar Gaddafi's grip on power in the OPEC-member nation has been challenged by violent protests calling for his resignation. (Rolex Dela Pena / EPA) Back to slideshow navigation
  11. A picture taken on April 7, 2011 from a helicopter shows Russian LUKOIL ice-resistant fixed platform LSP-1, built at the Astrakhansky Korabel shipyard, intended to drill and operate wells and collect and pre-treat reservoir content at Korchagins oil field in the Russian sector of the Caspian Sea some 120 miles outside Astrakhan. The field's productivity of oil and gas condensate will peak at 2.3 million tonnes oil and 1.2 bcm gas per year. (Mikhail Mordasov / AFP - Getty Images) Back to slideshow navigation
  12. Rebels pray in front of an anti-aircraft gun near a refinery in Ras Lanuf on March 8, 2011. Libyan government troops, tanks and warplanes attacked rebels on the western and eastern fronts on Tuesday, pressing their campaign to crush an insurrection against Muammar Gaddafi. In the east, a swathe of which is under rebel control, air strikes targetted rebel positions behind the frontline around the oil town of Ras Lanuf on the Mediterranean coast. (Goran Tomasevic / Reuters) Back to slideshow navigation
  13. Protestors holds signs across the street from a working natural gas well drilling in Flower Mound, Texas on Monday, Nov. 29, 2010. Residents in suburban Texas and rural Pennsylvania are living with the nastiness and rancor erupting in communities nationwide over the volatile issue of hydraulic fracturing, a form of gas drilling. (Lm Otero / AP) Back to slideshow navigation
  14. Floor hands and engineers adjust a down hole motor used for directional drilling on a natural gas drilling platform on December 18, 2008 in the Barnett Shale in Fort Worth, Texas. Drilled in a commercial area adjacent to the Interstate-35W expressway, the 11,600 foot well is owned by Chesapeake Energy Corporation. It's the first of 10-13 wells expected to be drilled on the leased site. Urban wells are required to be 600 feet from the nearest homes, schools, churches, hospitals and parks. Multiple wells on a site require less distance. In Texas, state law gives owners of mineral rights the prerogative over owners of surface land. One of the largest natural gas fields in the US, the Barnett Shale formation, discovered in the early 1950's, covers 5,000 square miles underlying the Dallas-Fort Worth area and is proven to hold 2.5 trillion cubic feet of natural gas. The Barnett Shale is known as a tight gas reservoir in hard shale rock and requires hydraulic fracturing technology to properly release the underground gas. Drilling in urban areas of Fort Worth has been a contentious issue between city councils, local residents, large land holders and influential energy companies. Residents have been objecting to heavy truck traffic of 18-wheel service vehicles, road destruction, noise, dust and waste water removal. Fort Worth has been called the guinea pig for natural gas drilling in close proximity to residential areas. (Robert Nickelsberg / Getty Images) Back to slideshow navigation
  15. Louisiana coastal director Garret Graves diggs up oiled soil in a coastal marsh on April 19, 2011, at Middle Ground in southern Louisiana. A year after the BP oil spill coated Gulf coast beaches and marshes, BP claims that most of the oil has been removed. Louisiana Wildlife and Fisheries says, however, that much of the coastal cleaning has been superficial, as the oil has seeped into the soil, killing marshes and further eroding the state's damaged Mississippi Delta ecosystem. (John Moore / Getty Images) Back to slideshow navigation
  16. Fire boat response crews battle the blazing remnants of the off shore oil rig Deepwater Horizon on April 21, 2010. The oil rig was located 42 miles southeast of Venice, La. where it drilled through 5,000 feet of water and 13,000 feet underneath the seabed. (U.S Coast Guard via AP) Back to slideshow navigation
  17. A kayaker stops to photograph a gash, approximately 90-feet long, in the hull of the container ship Cosco Busan in Oakland, Calif., on November 10, 2007. The vessel struck the Bay Bridge spilling about 58,000 gallons of oil into the San Francisco Bay. Hundreds of people and a fleet of oil-skimming boats wprked to clean up San Francisco Bay's worst oil spill in nearly two decades, as rescue teams raced to save hundreds of seabirds. (Noah Berger / AP) Back to slideshow navigation
  18. A man walks along oil pipelines belonging to Italian oil company Agip in Obrikom, Nigeria, March 6, 2006. Angola is joining OPEC, African oil exploration is booming and China is investing. The stampede for African oil has continued, even as militant attacks in some countries and precarious governments in others make returns uncertain. (George Osodi) Back to slideshow navigation
  19. An Iranian technician works at the Balal offshore oil platform in the Gulf waters, in the Gulf on the edge of Qatar's territorial waters, 16 May 2004. Iran's Vice President Mohammad Ali Aref officially inaugurated the Balal offshore oil field developed by French major Total together with BowValley of Canada and Italy's Agip. The Balal field is currently producing 40,000 barrels per day and was developed under a 310-million-dollar agreement signed in 1999. (Behrouz Mehri / AFP/Getty Images) Back to slideshow navigation
  20. The Petroleos Mexicanos (PEMEX) oil ri sits near the shores of the state of Campeche, Mexico,in the Gulf of Mexico, September 4, 2006. Mexico on August 20, 2007 put part of its Caribbean coast on red alert and shut down its offshore oil facilities as Hurricane Dean barreled toward the Yucatan Peninsula after killing at least six people and battering Jamaica. Projections had the hurricane making landfall about 150 kilometers (93 miles) south of Cancun. (Eunice Adorno / AFP - Getty Images) Back to slideshow navigation
  21. Trains haul oil tank cars at a railway station in PetroChina's Daqing oil field in China's northeastern Heilongjiang province, November 5, 2007. Chinese oil majors will push back maintenance work and curb exports to guarantee diesel supplies after the country's worst fuel crunch in four years, the country's top economic planner said. (Stringer Shanghai / Reuters) Back to slideshow navigation
  22. Oil field workers work at a well head in Sinopec's Jianghan oil field on the outskirts of Guanghua, central China's Hubei province, November 5, 2007. Chinese oil majors will push back maintenance work and curb exports to guarantee diesel supplies after the country's worst fuel crunch in four years, the country's top economic planner said. (Stringer Shanghai / Reuters) Back to slideshow navigation
  23. An oil installation in Saudi Arabia's northeastern Gulf port of Jubail, June 1, 2004. The United Arab Emirates (UAE) will increase oil output this month by 400,000 barrels per day (bpd) over its OPEC quota to help ease record prices, Oil Minister Obeid bin Saif al-Nassiri announced June 2, 2004. Crude oil futures in New York surged on June 1 to a record closing price of 42.33 dollars a barrel, as a deadly weekend attack in Saudi Arabia heightened fears about terrorist disruptions to energy supplies. (Bilal Qabalan / AFP/Getty Images) Back to slideshow navigation
  24. Oil refinery Complex Jose de Anzoategui, 200 miles east of Caracas, Venezuela. The complex, that makes refined crude from the heavy oil of the Orinoco Belt, is a joint venture between Venezuelan state owned PDVSA and the foreign companies Chevron, British Petrolum, Total and Statoil. On May 1, 2007 Venezuelan President Hugo Chavez changed the stock holdings of the complex to make PDVSA, with 60 percent of the stocks, in control of the participating companies. (Diego Giudice / Redux Pictures) Back to slideshow navigation
  25. A bucketwheel once used by Syncrude in the oil sand fields to move the sand to the extraction plant lies idle, June 12, 2007 in Fort McMurray Canada. The development of Canada's oil sands is laying waste to its great northern forest and western plains, say critics who point to skyrocketing greenhouse gas emissions, diverted rivers and razed backwoods. And the devastation can only get worse, they say, as energy companies pump billions of dollars into new projects to triple local oil production to some 3.0 million barrels per day within the next decade. (David Boily / AFP - Getty Images) Back to slideshow navigation
  26. The trans-Alaska oil pipeline on remote wind-scraped flatlands in Alaska's north coast near the Beaufort Sea is seen Monday, March 13, 2006. Lawmakers will question BP's top U.S. official at a potentially contentious hearing Wednesday, May 16, 2007 focused on whether the company neglected necessary pipeline maintenance before oil spills in Alaska. (Rick Bowmer / AP) Back to slideshow navigation
  27. The Syncrude extraction facility in the northern Alberta oil sand fields is reflected in the pool of water being recycled for re-use in the extraction process, June 14, 2007 in Fort McMurray, Canada. With world oil prices hovering at near nine-month highs and global energy firms flush with cash, analysts are predicting that control of Canada's booming oil sands sector could soon fall into foreign hands. Analysts said Canadian companies such as UTS Energy, Canadian Oil Sands, Opti Canada and Western Oil Sands with properties in northern Alberta are likely takeover targets. (David Boily / AFP - Getty Images) Back to slideshow navigation
  28. The Discoverer Deep Seas drillship sits on station off the coast of Louisiana as Chevron drills for oil in the Gulf of Mexico March 28, 2006. As budget planning gets under way for Gulf Coast states, the states are realizing how much spending freedom they have with royalties from an offshore drilling expansion . They can use the money to pave roads, erect bridges, lay water lines or finish just about any other public works projects they can link to the coast. (Alex Brandon / AP) Back to slideshow navigation
  29. A picture taken September 13, 2006 shows an oil tanker supplied with oil at the main oil port in Bijaya City some 210km east of Algiers. The 50 billion dollar 2005 oil revenue is considered Algeria's largest source of national income. (Fayez Nureldine / AFP/Getty Images) Back to slideshow navigation
  30. Workers load a fish processing machine with Tilapia fishes at the ''Aquafinca Saint Peter Fish'', in the village El Borboton, 200 km North of Tegucigalpa, July 23, 2007. The company began 5 years ago processing Tilapia fish for the food industry, but now they started processing them to produce biodiesel, becoming the world leader in biodiesel from animal origin. (Elmer Martinez / AFP - Getty Images) Back to slideshow navigation
  31. Guests and members of the media in attedence as Imperium Renewables open the largest biodiesel production facility in the United States at the Port of Grays Harbor, August 15, 2007 in Hoquiam, Washington. The opening was presented as an opportunity to replace dependence on foreign oil imports with cleaner, renewable fuels while also providing benefits to the local community and agricultural industries. (Kevin Casey / Getty Images) Back to slideshow navigation
  32. Mining trucks carry loads of oil laden sand after being loaded by huge shovels at the Albian Sands oils sands project in Ft. McMurray, Alberta, Canada, on August 5, 2005. An environmental group opposing the first commercial U.S. oil sands project is appealing to Utah water quality regulators to reconsider its decision to permit the plan. The Moab-based group Living Rivers has been fighting the project, claiming it could contaminate an underground aquifer. (Jeff Mcintosh / AP) Back to slideshow navigation
  33. A labourer works at a branch factory of China National Offshore Oil Corp (CNPC) in Lanzhou. CNPC has become the first Chinese firm to control a Canadian oil sands project after winning exploration rights to the resources in Alberta. In 2005, China National Offshore Oil Corp agreed to acquire a 16.69 percent stake in Canada's MEG Energy Corp, for 150 million Canadian dollars. The later owns oil sand leases in 52 sections totalling 32,800 acres in Alberta. Sinopec, Asia's largest refiner, also agreed to pay 150 million Canadian dollars for a 40 percent stake in a joint venture producing synthetic crude from western Canada oil sands. The Shanghai newspaper cited officials with the China National Petroleum Corp as saying that oil sands, which are more expensive to process than light crude, are viable as long as crude prices are above 30 dollars per barrel. At an estimated 173 billion barrels, Canada's oil sands rank second behind Saudi Arabia in petroleum reserves at 230 billion barrels but they were long neglected due to high extraction costs. Since 2000, however, soaring crude prices and improved extraction technology have persuaded several foreign companies to invest billions of dollars. (Cao Zhizheng / Zuma Press) Back to slideshow navigation
  34. Two Iraq oil workers walk through the Dura oil refinery outside Baghdad Saturday, February 22, 2003. Iraq's oil reserves are the second largest in the world after Saudi Arabia. (Jerome Delay / AP) Back to slideshow navigation
  35. In this undated photo provided by the Arctic National Wildlife Refuge, caribou graze on a section of the Arctic National Wildlife Refuge in Alaska. The U.S. Senate on Wednesday, March 16, 2005, voted to open the Alaska wildlife refuge to oil drilling. (AP) Back to slideshow navigation
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By John W. Schoen Senior producer
updated 11/7/2007 4:02:22 PM ET 2007-11-07T21:02:22

Fueled by strong demand, worries about supplies and the eroding purchasing power of the dollar, crude oil prices continued to close in on the $100 a barrel mark Wednesday — up $35 in just the past six months.

With oil prices advancing so rapidly, the immediate unknown is where they will stop before taking a breather. But the longer-term question may be even tougher to answer: How high can oil prices go before the higher cost of energy tips the U.S. economy into recession?

The rising cost of energy was one of several factors that send stock prices tumbling Wednesday, with the Dow Jones industrial average losing 360 points, or nearly 3 percent. The Dow and other major indices have lost about 6 percent in the past month, largely because of problems at big banking and brokerage firms related to bad mortgage loans.

Despite brief pauses, crude oil prices have risen relentlessly since May, as a strong global economy continues to burn through supplies as quickly as producers can replace them. A falling U.S. currency, meanwhile, has increased the price in dollar terms and stoked buying by investors looking for a place to hedge the dollar’s decline.

As a result, the short-term peak price is anybody’s — and everybody’s — bet.

“I think that $100 a barrel for oil is going to be near the peak for oil in the near term,” said Sam Stovall, chief investment strategist at Standard & Poor’s. With prices heading nearly “straight up, our feeling is that's not sustainable. We could see oil come down to $75 or $70 per barrel level.”

But so far, oil contracts on the futures markets have taken on the momentum of a runaway tanker car. On Wednesday, trading was brisk in contracts for delivery in coming months at prices well above the $100 mark. The benchmark near-month contract topped $98 a barrel before settling at $96.37 on the New York Mercantile Exchange.

“I'm not in the camp that we're going to $100 and stop,” said John Kilduff, an energy analyst with MF Global. “I think we’re going to keep going. There's no reason for it not to keep going.”

No supply cushion
Buyers of oil are worried about more than the falling dollar. Until earlier this decade, global oil production capacity included a bit of slack, most of it controlled by the Organization of Petroleum Exporting Countries, which tried to manage prices — with mixed success — by increasing or withholding production. That supply cushion has been all but eliminated as global demand, fueled by rapidly growing economies, has risen faster than new supplies are found and developed.

“China, the United States and the Middle East countries are the main drivers of consumption growth,” according to the U.S. Department of Energy’s latest report on oil prices. China and the United States alone are projected to account for half the growth this year and next.

At the same time, oil producers, both state-owned oil companies and private global giants like ExxonMobil and Chevron, haven’t been able to increase supplies fast enough to meet that new demand. Part of the problem is that the cost of developing new supplies — everything from drilling rigs to the people who operate them — has skyrocketed. The cost of building new oil and gas production facilities has roughly doubled since 2005, according to a report released Wednesday by Cambridge Energy Research Associates.

“That explains some of the lag on the supply side," said CERA Chairman Daniel Yergin.

Meanwhile, political instability in major oil producing regions — from Nigeria to Venezuela — threatens to further crimp the flow of oil. Recent U.S. saber rattling with Iran has added to concerns about possible supply interruptions.

“I have never seen so many various supply threats in my career,” said Kilduff. “It's just myriad threats to the supply chain at a time when we're not producing enough oil in relation to how much we're consuming.”

Major Market Indices

For U.S. consumers, the surge in crude prices has not yet been fully felt at the pump, but that may soon change. Until a few weeks ago, gasoline prices had been falling from peak levels reached in May, even as crude prices began to climb. That drop in pump prices was due largely to the seasonal drop in demand that comes with the end of the summer driving season, along with ample gasoline supplies. The combination took a big bite out of oil industry profits, who saw their profit margins erode as the retail price didn’t keep pace with their increased costs.

But with no letup in the higher cost of crude, pump prices are beginning to swing back up again. The average price for a gallon of regular gas shot up 14 cents in the latest week to $3.01, according to numbers released Wednesday by the Energy Department. That’s still below peak price of $3.21 in the week in May, but up 81 cents from this time last year.

At some unknown price point, say economists, higher oil prices should eventually begin to curb economic growth — or possibly drag the U.S. into a recession. Even after adjusting for inflation, prices are nearing the record level set in the 1970s.

Most analysts acknowledge there is a “tipping point” where high oil prices would knock the eocnomy into recession, but there is little agreement on where that point lies. A lot depends on how well consumers, who account for roughly 70 percent of U.S. economic activity, hold up under the increased price pressure at the pump.

So far, the run-up in oil prices doesn’t appear to have done much damage to the U.S. economy, at least according to the most recent statistics. The government's initial tally showed third-quarter gross domestic product growing at an annual pace of nearly 4 percent; figures showing strong job growth in October seemed to confirm that the economy is still on track.

“I think the higher gas prices are likely to crimp consumer spending to some extent, but people have been waiting for the demise of the consumer for a long time, and it just never happens,” said Julia Coronado, senior economist at Barclays Capital. “The key to the consumer has always been and continues to be the labor market, and the latest reading on the labor market shows that income is growing quite nicely, and there are still jobs being added.”

Economists have several explanations for why the surge in oil prices has dampened growth.

One big reason is that its take a lot less oil to produce each dollar of GDP than it did 30 years ago, the last time the U.S. faced runaway crude prices. More people today make their living sitting behind a computer screen with relatively low energy demands, while the role of energy-intensive industries like manufacturing has declined.

As oil prices have risen, consumers are using it more efficiently. Despite stalled gains in U.S. auto mileage, new buildings and appliances are more energy efficient. Electric power producers have turned to other fuels like coal and natural gas. Overall, U.S. oil consumption flattened out at a little over 20 million barrels per day over the past five years — and even dipped slightly last year — as the economy continued to grow.

For the moment, those efficiency gains are helping the economy keep a lid on the spillover impact of higher oil costs on the prices of goods and services. As oil prices neared the $100-a- barrel mark Wednesday, the government reported that business productivity rose by 4.9 percent in the third quarter, more than double the 2.2 percent gains in the second quarter.

But oil prices aren’t the only cloud on the economic horizon. The ongoing slump in housing, along with continued uncertainty about rising mortgage default and foreclosures, could have a more serious impact. Most U.S. recessions since World War II have been lead by housing downturns, and the current slump is the deepest in decades. If the housing market continues to worsen, higher energy prices would only add to the headwinds faced U.S. businesses and consumers.


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