Like a driver reflected in the puddle of oil on his driveway, crude prices can mirror the global economy — and analysts aren't pleased with what they're seeing.
As the Organization of Petroleum Exporting Countries prepares to meet in Vienna on Wednesday, experts predict that prices will remain high for the rest of the year and well into 2006, even if the cartel decides to raise its production ceiling.
OPEC, which churns out 40 percent of the world's daily production, is expected to approve a 500,000 barrels-a-day increase to make its official quota 28 million barrels a day. But it's already pumping roughly 30 million barrels, meaning the move would be largely symbolic and unlikely to bring down stubbornly high prices.
Finance ministers from the Group of Eight industrialized nations, meeting in London over the weekend, called for greater investment in increased energy efficiency and alternative sources of energy.
Sustained high energy prices, they warned, "are of significant concern since they hamper global economic growth."
Prices have been hovering around US$53 a barrel — well over the US$50-per-barrel psychological threshold — unnerving the industry and offering no prospects for relief for consumers beset by high prices at the gas pumps.
"A lower oil price is in OPEC's interest, but the group's power over oil prices is diminished because of the scarcity of excess capacity," said Robert Plexman, an analyst with Canada-based CIBC World Markets Corp.
"Physical production continues to exceed demand. Thus, while 'official' quotas may increase, this would do no more than legitimize current production levels," said Doug Leggate, an analyst with Smith Barney in New York.
Even if OPEC raises its production ceiling, it may not make sense to add actual oil to the market, Saudi Arabian Oil Minister Ali Naimi said Saturday.
Saudi Arabia is pumping 9.5 million barrels a day this month, and "that's what is needed by customers — that's what they are asking for," Naimi said. "There is no shortage of supply," he added, calling an increase in the production ceiling "reasonable."
Naimi attributed the current high crude prices to constraints in the worldwide refining system. "That is where the bottleneck is," he said.
But because OPEC is already producing above its quota, some analysts like Victor Shum of Texas-based energy consultants Purvin & Gertz in Singapore believe those would be mythical barrels.
"Even if they raise the output target, it's only legitimizing some of the overproduction," Shum said. "The fundamental factor for rising prices is the limited spare crude oil production capacity in OPEC."
Saudi Arabia is the only known country in the group with the ability to add barrels to daily production.
"If you look at spare capacities, it implies that OPEC does not have much room to maneuver," Orrin Middleton, an analyst with Barclays Capital in London, said Monday. "I don't think they have much up their sleeve to influence prices at this point."
In its latest report issued Friday, the International Energy Agency left its estimate for 2005 world oil demand unchanged at 84.3 million barrels a day, although it raised its growth estimate for the fourth quarter by 230,000 barrels per day to 1.9 million barrels per day. It said OPEC's output fell by 55,000 barrels a day in May to 29.3 million barrels.
Oil prices have been rising for 2 1/2 years and have more than doubled since then.
Jochen Hitzfeld, an economist with Germany's HVB Group, expects Brent crude prices to average US$51 a barrel this year and US$56 next year.
"Prices will remain high in 2005 and will continue to rise in 2006," he said.
Middleton said he expected prices to have another run near US$60 a barrel in the third quarter.
Hitzfeld and others caution that the so-called "global depletion midpoint" — the point at which roughly half of the worldwide reserves have been tapped and production can no longer be increased — could come by the end of the decade.
"Petroleum production in many important producing countries, such as the United States, the United Kingdom and Norway, has already passed the depletion midpoint," he said, adding that the quality of crude also is deteriorating, "resulting in higher costs at refineries and causing production bottlenecks."
"For that reason, we see no relief for the oil market even in the longer term," Hitzfeld warned.