Oil Back Above $70

Just in time for the July Fourth holiday: the fall-spring fling with lower oil prices is over. The price of a barrel shot past $70 today for the first time since last October, when it was tumbling from its July peak of $147 a barrel. The price bottomed out around $30-$35 just before Christmas and again in February. But it's been on a steady climb since.

The immediate reason for Monday's 3 percent jump was an attack by Nigerian rebels on a Royal Dutch Shelll facility offshore. But the trend is up regardless, the Paris-based International Energy Agency said in a report published today, "partly due to a perception that economic recovery may be just around the corner." If it is, the rise in oil prices may endanger it. But that's all speculation.

Still, speculating is what dozens of governments give the IEA millions of dollars to do, and in its latest reading of oily tea leaves, "Medium-Term Oil Market Report 2009," the IEA, like an indecisive weatherman, has it both ways: "the risk of a rapidly tightening oil market from 2012 onwards on the one hand, counterbalanced by another scenario which shows OPEC spare capacity remaining around a more comfortable 6 million barrels a day (mb/d) for the entire outlook period."

The agency's director, Nobuo Tanaka, hedges his analysis: “Whether we end up facing a supply crunch again by mid-decade, or with a more comfortable buffer of supply flexibility, depends largely on the pace of economic recovery and government action on efficiency.”

The agency's analysis of oil demand worldwide is equally puzzling with contradictions. The agency sees oil demand rising up to 1.4% annually between 2010 and 2014, or 89 million barrels per day by 2014. But it also suggests that the great recession of the past year and "restructuring" across the globe (the bankruptcy of GM, the humbling of Chrysler, the conservation and efficiency measures of many governments) may yield an overall reduction in oil use of up to 3 million barrels per day. So whatever increase in demand takes place over the next four years would be offset by those structural reductions in consumption.

That's assuming that oil demand in Asia and the Middle East, which powered the oil consumption boom of the decade, doesn't resume at the same pace it maintained before the recession.

Enough qualifiers. No one, not even the IEA, had predicted the extent of the oil-consumption boom since the late 1990s, when oil was trading near historic lows. (In fairness, the IEA's predictions for 2008-2013 were not too far off the mark through our spot in 2009).

No one can really predict where the price will go next except in the most general terms. It's a dismal science all its own, though this much we know: oil, unlike economists, is a finite resource. So betting on its eventual extinction, and whatever that brings (higher prices being the most inevitable and obvious symptom) is bound to be a sure bet sooner or later.

See Also:

• Middle East Oil Reserves By Country and Rank
• Why Are Oil and Gas Prices So High? Don't Blame OPEC
• Predicting Oil Prices and Trends 2008-2013
• U.S. Dependence on Foreign Oil, by Country
• Oil Prices 24/7
• Iran Paradox: Why World's 2nd-Biggest Oil Reserve Imports Gasoline