Oil for 2016 Delivery Passes $141 on Supply Concern

Bloomberg: Oil for 2016 Delivery Passes $141 on Supply Concern (Update3) 
By Margot Habiby

May 21 (Bloomberg) — Oil prices are heading to more than $141 a barrel in the next eight years, according to futures contracts on the New York Mercantile Exchange, on concern that growth in supply may fail to keep pace with rising demand.

Oil for delivery in December 2016 surged $20.09, or 17 percent, in the past four trading days since Goldman Sachs Group Inc., the world’s biggest securities firm by market value, forecast oil would average $141 in the second half of 2008 on constraints in production and a lack of substitutes. Crude for July 2008 climbed 4.4 percent in the same period, and today rose to a record $130.47.

The gain, more than triple the increase in oil for delivery this summer, “fits in” with the Goldman forecast which “talked recently about long-dated crude in particular,” said Tim Evans, an energy analyst for Citi Futures Perspective in New York.

Oil giants such as Exxon Mobil Corp., Royal Dutch Shell Plc, BP Plc, Chevron Corp., Total SA and ConocoPhillips will spend a record $98.7 billion this year on exploration and production, more than quadruple the amount eight years ago. The supplies companies tap from non-OPEC countries will only meet about 20 percent of world demand growth over the next four years.

Earlier this month, UBS AG forecast that Brent crude oil, a benchmark for two-thirds of global supplies, would rise to $200 a barrel by 2015. The increase results from demand outpacing spare supply capacity sometime in 2013 to 2015, according to the May 15 report by UBS economist Jan Stuart.

Saudi Output

The struggle to find oil coincides with a boom in demand from places like China and the Middle East, where it will rise 4.9 percent this year, making up for a drop in demand from North America and Europe, the International Energy Agency said in a report May 13. It cut its forecast for global demand for a fourth month.

“You have had a lot of press, whether from OPEC or other market watchers, calling for significantly higher prices than what we’re seeing today,” said Eric Wittenauer, an energy analyst at Wachovia Securities in St. Louis. “Those can be proof positive for the higher end of the curve.”

A Saudi Arabian decision last week to increase crude oil output unilaterally in June may not lower prices because speculators are driving the rally, not a supply shortage, Shokri Ghanem, the chairman of Libya’s National Oil Corp., and Iraqi Oil Minister Hussain al-Shahristani said earlier this week.

The December 2016 futures contract rose $3.01, or 2.2 percent, today to $141.39 a barrel. It’s up from $121.30 a barrel on May 15. Goldman raised its oil-price forecast by 32 percent on May 16. The price rose 6.5 percent yesterday.

Big Jump

“The move was a big jump in one day for markets that far forward, which also makes it seem as if the markets thin out in those contract months,” Evans said of yesterday’s move. Sixty- seven contracts traded, compared with more than 296,000 for the most-active July contract. Only one contract has traded so far today.

Goldman analyst Arjun N. Murti wrote in a report earlier this month that “the possibility of $150-$200 per barrel seems increasingly likely over the next six-24 months.”

Front-month futures rose above $130 for the first time today after at least five banks raised price forecasts in the past week on expectations supply constraints will persist. Billionaire hedge-fund manager Boone Pickens said yesterday that oil will reach $150 a barrel this year because supply isn’t keeping up with demand.

Crude oil for July delivery fell 5 cents to $129 a barrel at 9:21 a.m. on the New York Mercantile Exchange, after reaching $130.47. Prices are 95 percent higher than a year ago. Oil rose above $130 a barrel for the first time after at least five banks increased forecasts in the past week on expectations supply constraints and demand growth will persist.

To contact the reporter on this story: Margot Habiby in Dallas at[email protected].

Last Updated: May 21, 2008 09:49 EDT