Crude awakening

The 50th birthday of OPEC in September was accompanied by few celebrations -- although philatelists salivating at the prospect of the commemorative stamps issued by the 12 countries in the oil cartel may have held private parties.

OPEC members, always mindful that not everyone is happy with their sway over oil markets, may yet permit themselves some backslapping at a gala dinner at OPEC's next meeting on Thursday. An organization dedicated to "the stabilization of oil markets" and "a steady income to producers" has done a decent job of late.

Benchmark West Texas Intermediate crude has mainly traded at between $70 and $80 per barrel since mid-2009. Earlier that year OPEC cut production by 12 percent to support prices, which had collapsed after the credit crisis from a peak of $147 a barrel in 2008 to just $33. This June OPEC, which supplies over two-fifths of the world's oil, declared that it was "comfortable" with $70 to $80 a barrel.

At this price consumers do not complain too much. And OPEC's revenues this year should hit $625 billion, according to the Center for Global Energy Studies, a consultancy, after slumping in 2009. That will be roughly the same as in 2007, when members pumped 1 million barrels per day more crude.

But oil could be heading beyond OPEC's comfort zone. According to Goldman Sachs, world demand in the first eight months of the year was 2.7 million barrels per day higher than in the same period in 2009. Last week crude oil rose above $83 a barrel, a five-month high, and retreated only slightly after reports of a surprising increase in American stockpiles.

In the short term, the price could get another boost from rising stock markets. Before the crisis, oil prices tended to move in the opposite direction from that of equities (higher prices mean higher costs for energy-consuming firms). But since March 2009, oil prices and the S&P 500 index have shown positive correlation, said Adam Sieminski of Deutsche Bank.

Sieminski also notes the historical effect of American midterm elections on share prices. If the optimism that customarily grips investors is repeated next month, it could put another $8 on the oil price.

Looking still further out, the booming economies of China, India and other developing countries will need much more fuel. The rich world should eventually rediscover its thirst, too.

Non-OPEC supplies, which have grown in recent years, may start to decline in 2012. New wells will fail to plug the gap left as older fields dry up, despite the investment that 2008's higher prices encouraged.

OPEC is likely to respond by tapping its spare capacity -- belonging mainly to Saudi Arabia. OPEC is tight-lipped about how much it could pump. Some estimates put it at about 5 million to 6 million barrels per day, though others think the amount that could readily hit the market is much lower.

Such calculations determine estimates of when demand will begin to outpace supply, a circumstance that, just as in 2008, would cause precipitous price spikes. Jeffrey Currie of Goldman Sachs reckons that demand could be "bumping up" against capacity in 18 months. Other analysts with greater doubts about global growth give it four years or more.