NEW YORK - Rising concerns about an energy supply crunch in the coming years are helping send up long-term crude prices much faster than the dazzling rally in short-term prices, a trend that could prompt oil companies to start beefing up stockpiles.
Analysts say a rise in resource nationalism during oil's six-year rally has ratcheted up the cost of doing business in many producer nations and has reduced access to key reserves needed to meet growing world consumption, spelling a worsening energy crisis in the next five years.
"Since the first of the year, if you look at spot WTI (West Texas Intermediate crude oil), it is up 30 percent, but when you focus on the long-dated (it is up) 50 percent," Goldman Sachs analyst Jeff Currie said in a conference call.
"The long-dated price is not pricing the supply and demand of the fungible commodity that we see today but rather pricing supply and demand of long-term capital to invest in long-term production capacity," he said.
Front-month crude oil shot to a record near $134 a barrel on Wednesday, but December 2013 peaked at over $138 while December 2016 crude topped $142.
This market structure, called a contango with near month crude trading at a discount to later month crude, generally reflects a near-term supply overhang and expectations of tighter markets further out. But it also tends to encourage energy companies to fill up their storage tanks as the supplies they are storing gain value over time.
"I fully expect that for the next seven quarters we are going to see a commercial inventory build (with) supply outpacing demand," said Edward Morse, chief energy economist for Lehman Brothers.
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Countries with substantial energy reserves like Venezuela and Russia have put tough controls on foreign energy companies seeking to develop those fields, limiting production growth and leading to some output declines, analysts say.
Goldman Sachs said in a recent report that long-term world supply growth has slowed to around 1 percent while GDP growth has accelerated to 3.8 percent -- the ingredients for a medium-term supply crunch.
Other analysts agree resource nationalism could tighten up the market down the road, but add the dismal outlook painted by Goldman may be overstated.
"There is a recognition that the above ground risks to production have gone up recently, but there is a tendency for the market to extend that into the future," said Antoine Halff, analyst for Newedge.
"You can't turn (resource nationalism) off on a dime and it probably takes longer to fix the investment climate than it took to wreck it, but I think the assumption that some of those pressures are structural and will only get worse may be overstated," he said.
SPECULATION
Oil prices have jumped sixfold since 2002, as supply struggles to keep pace with surging demand in emerging economies like China and India. But recent strength has also been linked to an inflow of speculators looking to hedge against the weak U.S. dollar and inflation.
Some analysts say the shift of the oil futures curve into contango this week may have been heavily influenced by an influx of speculator cash more than a longer-term concern about access to reserves.
Still, the contango structure may be around for a while.
"While this flip into contango may have been started through financial flows rather than through the physical market, I think the physical market will eventually catch up with it and I would expect the contango to be persistent," Morse said, adding he expected the overall price level of the curve to eventually shift lower.
Analysts say a rise in resource nationalism during oil's six-year rally has ratcheted up the cost of doing business in many producer nations and has reduced access to key reserves needed to meet growing world consumption, spelling a worsening energy crisis in the next five years.
"Since the first of the year, if you look at spot WTI (West Texas Intermediate crude oil), it is up 30 percent, but when you focus on the long-dated (it is up) 50 percent," Goldman Sachs analyst Jeff Currie said in a conference call.
"The long-dated price is not pricing the supply and demand of the fungible commodity that we see today but rather pricing supply and demand of long-term capital to invest in long-term production capacity," he said.
Front-month crude oil shot to a record near $134 a barrel on Wednesday, but December 2013 peaked at over $138 while December 2016 crude topped $142.
This market structure, called a contango with near month crude trading at a discount to later month crude, generally reflects a near-term supply overhang and expectations of tighter markets further out. But it also tends to encourage energy companies to fill up their storage tanks as the supplies they are storing gain value over time.
"I fully expect that for the next seven quarters we are going to see a commercial inventory build (with) supply outpacing demand," said Edward Morse, chief energy economist for Lehman Brothers.
ACCESS DENIED
Countries with substantial energy reserves like Venezuela and Russia have put tough controls on foreign energy companies seeking to develop those fields, limiting production growth and leading to some output declines, analysts say.
Goldman Sachs said in a recent report that long-term world supply growth has slowed to around 1 percent while GDP growth has accelerated to 3.8 percent -- the ingredients for a medium-term supply crunch.
Other analysts agree resource nationalism could tighten up the market down the road, but add the dismal outlook painted by Goldman may be overstated.
"There is a recognition that the above ground risks to production have gone up recently, but there is a tendency for the market to extend that into the future," said Antoine Halff, analyst for Newedge.
"You can't turn (resource nationalism) off on a dime and it probably takes longer to fix the investment climate than it took to wreck it, but I think the assumption that some of those pressures are structural and will only get worse may be overstated," he said.
SPECULATION
Oil prices have jumped sixfold since 2002, as supply struggles to keep pace with surging demand in emerging economies like China and India. But recent strength has also been linked to an inflow of speculators looking to hedge against the weak U.S. dollar and inflation.
Some analysts say the shift of the oil futures curve into contango this week may have been heavily influenced by an influx of speculator cash more than a longer-term concern about access to reserves.
Still, the contango structure may be around for a while.
"While this flip into contango may have been started through financial flows rather than through the physical market, I think the physical market will eventually catch up with it and I would expect the contango to be persistent," Morse said, adding he expected the overall price level of the curve to eventually shift lower.
