Oil prices may have started knocking on the $100 a barrel mark since the first trading day of this year but its highly unlikely that it will hit heights achieved three years ago, according to analysts.
Even the most bullish analysts are quick to recite a litany of reasons why oil will not surge to near $150 again this year. Such a sharp spike would deal the world economy a heavy blow it can ill afford.
The list is long: oil companies are stepping up spending plans before supply reaches a crisis point; resource nationalism has eased; the dollar has firmed; and concerns that oil production is near peaking have subsided.
By far the most compelling reasons, however, are short-term supply fundamentals: There is far more oil in storage, far more fuel capacity at refiners worldwide, and far more idle oil wells that the OPEC can reactivate when it chooses, braking the market's rally in a way it could not three years ago.
"To a substantial degree, oil is not like it was then because there are bottlenecks that have been overcome both in refining and production capacity," said Edward Morse, managing director at Credit Suisse.
At the same time, consumer nations have since built up crude inventories, with stockpiles from members of the Organization for Economic Cooperation and Development now at 60 days worth of demand, compared with 53 days in 2008.
Oil demand growth jumped 2.2 million barrels per day (bpd) in 2010, the biggest rise in six years, and forecasts for an addition 1.5 million bpd of use in 2011.
Although those gains will boost consumption to beyond the previous record high in 2007, supply has risen far more during the recession after a host of multibillion-dollar projects -- ones that had been planned during the boom years prior to 2008 -- came to fruition.
OPEC members currently hold 5 million bpd-6 million bpd of spare oil production capacity to draw on, up to three times the amount the group had at the lowest point in 2008, primarily from top exporter Saudi Arabia.
"It is not in the Saudi interest to have a global economic recovery jeopardized by $100-plus oil," said Jan Stuart, a global oil economist at Macquarie in New York.
"Given the spare capacity, I don't think you are going to have the same upward spiral that you had in 2008."
Saudi Oil Minister Ali al-Naimi, OPEC's most influential member, reiterated last month that he preferred prices of $70-$80 a barrel, below current $89 levels and the 26-month peak near $92 hit earlier in the month.
And while supply from outside the group is set to rise a marginal 400,000 bpd this year, about one-third the rate of 2010, there have been more positive signs of late.
In 2008, non-OPEC output actually fell by nearly 400,000 bpd.
The wave of resource nationalism that cut international oil company access to reserves in the middle of the last decade has eased, with Venezuela and Russia now seeking more investment from foreign companies.
Globally, energy companies are expected to raise exploration spending 11% next year to the highest level in 25 years, according to a Barclays Capital forecast. That could prevent the kind of upstream supply crunch that resulted from a reluctance to invest five years ago.
Further support for non-OPEC production has come from the slower decline of mature fields like Mexico's giant Cantarell, while discoveries in deepwater off Brazil have added some 26 billion barrels of exploitable reserves -- enough to fuel the world for 10 months.
Any shortfall in 2011 could also be met by projected higher output from OPEC members such as Nigeria and Iraq, which has no formal production ceiling like other members and expects to add about 400,000 bpd this year, analysts said.
Even the most bullish analysts are quick to recite a litany of reasons why oil will not surge to near $150 again this year. Such a sharp spike would deal the world economy a heavy blow it can ill afford.
The list is long: oil companies are stepping up spending plans before supply reaches a crisis point; resource nationalism has eased; the dollar has firmed; and concerns that oil production is near peaking have subsided.
By far the most compelling reasons, however, are short-term supply fundamentals: There is far more oil in storage, far more fuel capacity at refiners worldwide, and far more idle oil wells that the OPEC can reactivate when it chooses, braking the market's rally in a way it could not three years ago.
"To a substantial degree, oil is not like it was then because there are bottlenecks that have been overcome both in refining and production capacity," said Edward Morse, managing director at Credit Suisse.
At the same time, consumer nations have since built up crude inventories, with stockpiles from members of the Organization for Economic Cooperation and Development now at 60 days worth of demand, compared with 53 days in 2008.
Oil demand growth jumped 2.2 million barrels per day (bpd) in 2010, the biggest rise in six years, and forecasts for an addition 1.5 million bpd of use in 2011.
Although those gains will boost consumption to beyond the previous record high in 2007, supply has risen far more during the recession after a host of multibillion-dollar projects -- ones that had been planned during the boom years prior to 2008 -- came to fruition.
OPEC members currently hold 5 million bpd-6 million bpd of spare oil production capacity to draw on, up to three times the amount the group had at the lowest point in 2008, primarily from top exporter Saudi Arabia.
"It is not in the Saudi interest to have a global economic recovery jeopardized by $100-plus oil," said Jan Stuart, a global oil economist at Macquarie in New York.
"Given the spare capacity, I don't think you are going to have the same upward spiral that you had in 2008."
Saudi Oil Minister Ali al-Naimi, OPEC's most influential member, reiterated last month that he preferred prices of $70-$80 a barrel, below current $89 levels and the 26-month peak near $92 hit earlier in the month.
And while supply from outside the group is set to rise a marginal 400,000 bpd this year, about one-third the rate of 2010, there have been more positive signs of late.
In 2008, non-OPEC output actually fell by nearly 400,000 bpd.
The wave of resource nationalism that cut international oil company access to reserves in the middle of the last decade has eased, with Venezuela and Russia now seeking more investment from foreign companies.
Globally, energy companies are expected to raise exploration spending 11% next year to the highest level in 25 years, according to a Barclays Capital forecast. That could prevent the kind of upstream supply crunch that resulted from a reluctance to invest five years ago.
Further support for non-OPEC production has come from the slower decline of mature fields like Mexico's giant Cantarell, while discoveries in deepwater off Brazil have added some 26 billion barrels of exploitable reserves -- enough to fuel the world for 10 months.
Any shortfall in 2011 could also be met by projected higher output from OPEC members such as Nigeria and Iraq, which has no formal production ceiling like other members and expects to add about 400,000 bpd this year, analysts said.
