Through the Roof?
The trend in the price of oil continues to be ever-higher prices fuelled by speculation. Winter-heating season shortfalls, summer-driving season shortfalls – man-made or natural disasters at every turn.

In the short term, according to Barclays Capital analyst Kevin Norrish, “The market is being pushed up by a very, very strong product market. There are real concerns about product availability – that’s what is underpinning the strength of the market at the moment.” And this market fear is not that production of crude oil will fall below expectations, but that refinery output will not keep up with demand when the “driving season” begins next month.

But what of the long term? What can we expect beyond the next “season”?

Recently, Goldman Sachs predicted that oil prices are in the early stages of what it called a “super spike” period and could reach as high as 105 dollars a barrel (“upwardly revised” from 80) over the next two years. The result of this prediction was, of course, quick price upturn, which eventually subsided, somewhat.

The consensus seems to be not if, but when this scenario will come to pass. That is, the markets were not so much surprised as they were in some way relieved – someone had finally said what many were waiting to hear. The real question seems to be how the scenario will play out. Will it take the “natural” two-year period predicted, or will it happen quickly, as the result of a monumental disaster?

Either way, some see the 50-dollar mark as the beginning of a new era. Will this be the point in history where demand begins to outstrip supply? The growth of demand from China alone is one factor to watch. China has already proved to be instrumental in the price of stainless steel, which doubled within a two-year period. So the “natural” upwards course, fuelled by demand, may prove to be quicker than we are used to.

And it’s not just the markets that are looking towards improving returns on investment. Recently, on 1 April, the Russian government increased its oil export duty to a record $102.60 per tonne. Reconsidered every two months, the duty has been $83 per tonne since 1 February, and between December 2004 and January, the duty was $101/tonne (the previous high point). Add to this rumours that the Russians are considering raising their version of the special oil tax, and it’s not too difficult to believe that they wish to raise the stakes of involvement in Russia’s oil business. It’s only a matter of time before other oil-nations begin doing the same.

Have these trends begun to affect the Norwegian Continental Shelf (NCS)? Exploration drilling on the NCS has begun to increase, notably in the Barents Sea, but although this has begun after the rise in oil prices, it’s not fair to say that this activity is the result of the rise. Recent activity can be more correctly attributed to the authorities, who have been at work to increase activity.

But we should watch to see just where all of this leads. Will the trend be for other oil-nations to begin to “maximise profits” by raising taxes to take advantage of increased demand? Will national profit-taking make the NCS more attractive? How will higher oil prices affect NCS fields that were previously deemed “unprofitable” or fields considered “marginal”? The answers may await us at the top of the spike.