Talisman Mining Ord Shs TLM

CBC on $100 a barrel oil...

[fireinthehole]

Deborah Yedlin: $100-a-barrel oil could be with us for a while Friday, February 22, 2008 By Deborah Yedlin, business columnist, Calgary Herald Oil prices breached $101 US a barrel this week. After sitting at $87.14 just two weeks ago, no one was expecting the price of crude to make a U-turn and head back toward $100. Especially given the dreary economic news that continues to come from the U.S. and the fact that the International Energy Agency cut its demand forecast by 500,000 barrels last week. But that's what happened. The bigger question now is whether it's sustainable. The futures market certainly seems to be thinking that way. The 12 month forward strip doesn't show anything below $96 a barrel. So what's going to support oil prices at or near current levels? Simply put - a combination of tight supply and demand fundamentals, continued weakness in the U.S. dollar and geopolitical uncertainty. We know that existing oil fields are expected to decline by 3.6 million barrels a day in 2008 and we're barely finding enough new reserves to replace what is being consumed. Not only are the economies of India and China continuing to grow - and this will continue even if the U.S. tumbles into a recession - consumption within OPEC countries is on the rise, as it is in Russia and Mexico. This is all about a rising middle class reaching levels of affluence where buying a car is now possible. The issue of geopolitics is still front and centre. This week's issue had to do with continued political tensions in Nigeria and the continuing conflict between Exxon Mobil and the Venezuelan government. The energy giant is still seeking compensation from Venezuela for nationalizing its assets last year. OPEC, of course, figures into this too. It continues to resist calls from the U.S. to increase output so that prices will drop. But the OPEC folks are not interested in anything that might compromise what flows into their coffers. If anything, they might cut production in anticipation of weaker demand in the second quarter and a lacklustre U.S. economy. The weak U.S. dollar means that $100 hurts the U.S. consumer more than it does anyone else. In relative terms, oil has become cheaper in relative terms. And with the U.S. Federal Reserve expected to cut rates again, it's a fairly safe bet that the dollar isn't about to start strengthening. That's good news for oil consuming countries - and the oil price - but bad news for U.S. consumers and businesses, especially those in the transportation sector. In short, it appears the evidence is stacked in favour of oil prices staying very close to the $100 level in the coming months - even if the U.S. economy tumbles into a recession. -- Deborah Yedlin