The goalpost has been pushed further!

As the oil prices breached another psychological barrier of $70, to some even a $100 a barrel price did not seem to be “far fetched”. With the roller coaster in the oil markets continuing, the Goldman Sach’s “super spike” possibility, which found limited support when it was first made public in March this year, is now starting to gain currency.

So where is oil literally heading to!

That’s perhaps the most difficult answer to provide for in the energy fraternity today. However, one thing is increasingly becoming clear — the higher oil prices are there to stay for some more time to come. For various — accountable and unaccountable reasons — the crude price curve has been pushed up — considerably!

The August Monthly Oil Report of the London based Center for Global Energy Studies says, “unless both upstream and downstream capacity constraints ease, global economic growth slows dramatically, or tensions in oil-producing countries ease, there is little prospect of oil prices falling far either this year or next”.

CGES indeed has reasons for this outlook. Rising global oil demand is continuing to put pressure on the industry’s ability to supply enough oil. As we move toward the Northern Hemisphere winter — when traditionally oil consumption stays on the higher side - OPEC will need to keep production above 30 million bpd to keep with the call on its production.

Further, the outlook for incremental non-OPEC supply in 2005 has also deteriorated, with Russian production — previously the engine of non-OPEC growth —stagnating in the first half, the CGES report emphasized. The Russian output recovery has shuddered to halt amid high taxes and uncertainty, with the Russian Ministry of Economy expecting an increase of just 0.2 million bpd in 2006.

OPEC has in the meantime, been adding to its capacity albeit slowly. Commissioning of new fields in Iran, Nigeria and North Africa is providing some sort of relief. Then the OPEC king pin Saudi Arabia is also investing in projects, which should boost its capacity to 11.3 million bpd by the end of 2006, says the CGES report.

Saudi Aramco has already initiated the tendering process for its Khurais expansion project. The Khurais increment program aims to add 1.2 million bpd of Arabian Light capacity by 2009. This is one of the several projects currently being undertaken by Saudi Aramco to raise its crude capacity to at least 12.5 million bpd by 2010. Other projects include the phase II expansion of the onshore Shaybah oil field — bordering Abu Dhabi — which will add about 300, 000 bpd of extra light crude and the development of the Nuayyim oil fields aimed at producing an additional 100, 000 bpd.

Crude prices will hit their highest level in autumn this year, if the market variables continue to affect the prices in absence of any oversupply by the OPEC and non-members, a senior Iranian official also predicted last week. The deputy head of National Iranian Oil Company for International Affairs Hojjatollah Ghanimfard forecast that the market will witness 1.2 million bpd to 1.5 million bpd increase in demand in autumn compared to summer, exerting additional pressure on already strained prices.

In the meantime, Wall Street giants Goldman Sachs and Merrill Lynch have also revised upward their predictions for the price of oil. Goldman Sachs expects that a barrel of US light crude will still cost close to $60 at the end of the decade. Even in the shorter run, Goldman Sachs predicts the prices to hover around $68 a barrel by the end of the next year. While Merrill’s global energy team also raised its forecasts for long-term US crude prices by 40%, it sees a more manageable price of $42 a barrel by 2009.

US commodities guru Jim Rogers told Reuters that oil will prices will soar upward to $100 a barrel. “I don’t know about the next quarter or even next year ... but it will go to over $100 a barrel (ultimately),” he said.

Although the latest price spike was triggered by storm worries in the Gulf of Mexico and a bigger-than-expected drop in American supplies of petrol, analysts agree that increasing global demand is the principal price driver. The prices spiked after the United States reported a drop in petrol stocks and China said its crude imports spiked in July. The markets were further strained by the storms affecting production in the Gulf of Mexico.

America is showing no let up in its demand for oil while the rapidly expanding Asian economies are importing ever-larger quantities to meet their demands of growth. The International Energy Agency estimates that demand for oil will increase to nearly 84 million barrels a day by the end of this year and will reach almost 87 million barrels a day by the end of next year.

Oil pundits are increasing converging on the point that oil prices in the immediate and the mid-term future are going to stay in the higher than normal range. The only divergence is now on the level the prices are to attain in the foreseeable future. But even on that some sort of agreement seems to be nearing - with some going to the extent that the price of $ 100 a barrel — is no more a matter of if — but when.