$200 a barrel coming soon?
I'm not one to automatically trust the word of any OPEC minister, but this quote from Chakib Khelil, Algeria's energy minister, bears some consideration:
Opec's president on Monday warned oil prices could hit $200 a barrel and there would be little the cartel could do to help.
[...]
Mr Khelil blamed record oil prices on the weak dollar and global political insecurity.
He told El Moudjahid, Algeria's government newspaper: "I don't think that an increase in production would help lower prices, because there is a balance between supply and demand and the stocks of gasoline in the United States have recorded a surplus and are at their highest level for five years."
First of all, it should be obvious that the weak dollar has contributed at least somewhat to the escalating price of oil, since the international oil trade is conducted almost exclusively in dollars. As the dollar weakens (due to mismanagement by the Bush administration), the price of commodities traded in that currency naturally rise. I don't think that's a controversial statement.
Also, it seems just as obvious to me that "global political insecurity" contributes to the rising price of oil, as it always has in the past. The Iranian hostage crisis of 1979-1980 caused oil prices to skyrocket. In today's market, the mercenary US occupation of Iraq continues to destabilize most of the Middle East. Coupled with persistent sabotage along Nigeria's oil pipelines and declining production outside OPEC, the near-term prospect of $200 per barrel or more seems all the more realistic.
Mr. Khelil, quoted above, blames factors external to OPEC for the rising cost of oil and offers the excuse that an increase in production from OPEC countries wouldn't make much difference. The OPEC nations collectively produce 40 percent of the world's oil supply, so it would seem an increase in OPEC output would indeed have at least some effect on global prices. However, he may be correct in the sense that the current price of oil is not just reflective of overly simplistic supply/demand curves; the current price also reflects significant market jitters regarding future supply and the stability of the US dollar.
Or maybe he's telling us something else. Maybe he's telling us that the OPEC countries are approaching the peak of their production, and they couldn't raise current production if they wanted to.
Only eight years ago, OPEC leaders were looking hungrily at $25 per barrel as the "correct level" for the price of oil, and they were considering a production increase in order to prevent the price from exceeding $30. Now that oil costs almost five times as much as it did only a few short years ago, it seems incongruous for those same oil ministers to claim that an increase in production at $120+ per barrel wouldn't make any difference on the global market.
If you were an oil minister for an OPEC country, wouldn't the prospect of increasing your government's revenue make you want to scramble to produce as much oil at current prices as possible? If OPEC really did have any spare production capacity at all, don't you think they'd be chomping at the bit to pump as much of it as they could?
(And before anyone suggests this ridiculous idea, no conceivable increase in US domestic production could possibly begin to make up the shortfall; we cannot drill our way out of this problem.)
At over $120 per barrel, any oil-producing nation with spare capacity would find itself in high cotton by increasing production only a tiny amount. The fact that no major oil-producing country is taking advantage of that potential may be a warning sign; maybe no one's increasing production simply because they can't.
If that's the case, we'll look back on $120 per barrel with nostalgic longing in a very short time.