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$180 a barrel Oil

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By Jim Jubak

Yikes! Oil at $117 a barrel. It has to go down from here, right?

Wrong. In the short term — say, the next two years or so — we’re looking at bad news about global oil supply that could take the price of a barrel of crude to $180.

Needless to say, today’s $3.50-a-gallon gasoline would look cheap if oil prices hit $180 a barrel. At that price for a barrel of oil, gasoline would cost somewhere north of $5.50 a gallon.

The good news is that’s about the price, experts now say, that would send global consumption tumbling and oil prices into retreat, as drivers scrambled to find ways to conserve.

Of course, experts once thought $3-a-gallon gasoline would lead to a drop in consumption. The latest forecast from the International Energy Agency calls for global oil demand of 87.2 million barrels a day this year. That would be an increase in consumption of 1.3 million barrels a day from 2007 — despite a U.S. economic slowdown and soaring oil prices.

So why do I think oil prices will keep climbing for two more years at least?

A terrible coincidence of geology and geopolitics. Just when oil is getting more expensive to produce, the oil industries in three key countries — Mexico, Russia and Nigeria — find themselves short of cash. And without that cash, oil production in these countries, and global oil production in general, is headed into a decline.

The Russian oil industry, for example, announced that production had fallen 1% in the first quarter of 2008. According to the Russian energy ministry, oil production for the full year could be lower than in 2007.

Any decline would mark a huge turnaround. Russian production has grown steadily over the past 10 years, and in its supply-and-demand projections the International Energy Agency has been counting on growth in Russian production of 5% by 2012 to offset big declines in older fields in the North Sea and Mexico.

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Written by Casey McConnell

April 22, 2008 at 4:20 pm

Posted in Bioenergy

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