But world crude oil prices have been propped up in part by the continuing absence of about 1 million barrels a day of high-quality, low sulfur Libyan crude. With the end of months of fighting in Libya, that output is returning, but gradually. Some uncertainty also remains about whether the new government can maintain stability, Sieminski said.
At the same time, global demand for oil is still rising, albeit modestly. The International Energy Agency, in its last market report, forecast that global oil demand would rise to 89.2 million barrels a day in 2011, up about 1 percent, or 900,000 barrels a day, over last year. The IEA expects demand to edge up another 1.3 million barrels a day next year.
All this has taken some of the slack out of the world oil market. There is slightly less excess production capacity, and developed countries have been drawing down inventories. The IEA says that in September, industry stockpiles in the member countries of the Organization of Economic Cooperation and Development fell below the five-year average for the third straight month, the first time that has happened since 2004.
Although Saudi Arabia increased its production slightly to make up for some of the Libyan shortfall, the quality of the extra Saudi oil available did not match that of the missing Libyan oil, and many companies did not buy any.
The appointment of Ben Yezza as Libya’s oil minister has provided some encouragement that Libya can recover quickly. Yezza previously served as chairman of a partnership between Italian oil giant ENI and Libya’s national oil company.
But uncertainty over Iraq and Iran also hangs over world oil markets. International allegations that Iran continues to work on a nuclear weapon have heightened concerns of military confrontation, adding a risk premium because oil prices would soar if an attack took place on Iran’s nuclear program.
Moreover, Iraq is bickering with Exxon Mobil, which has been working on a service contract to boost production in the giant West Quarna 1 field in southern Iraq. Plans call for a 1.85 million barrel a day increase in output by 2015, one of the world’s best prospects for new production. But Iraq’s government is threatening to punish Exxon Mobil for signing a production-sharing deal for exploration in the Kurdish north. Iraq is also quarreling with other international firms.
Some leading investment banks have been advising clients that oil prices will remain strong, and to some extent that sentiment can be self-fulfilling and reinforce prices by bringing more money into oil markets.
“Despite the notable slowdown in global economic growth, we continue to expect that oil demand will grow well in excess of production capacity growth,” a Goldman Sachs report said this week. “In our view, it is only a matter of time before inventories and OPEC spare capacity become effectively exhausted, requiring higher oil prices to restrain demand, keeping it in line with available supply.”