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Oil producers monitoring rising demand

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KAI RYSSDAL: As of today, $117.76 a barrel is the official record price. Crude closed at $117.52 in New York. Couple of things going on to drive that. There was an attack on a pipeline in Nigeria. There’s a refinery strike in Scotland, and there was a meeting today in Rome. The International Energy Forum lets both buyers and sellers talk about how much oil should cost, without getting all caught up in the emotions of the market.

It stands to reason that countries with oil would be trying to increase production so they can cash in on these prices, but that’s not the case, as Marketplace’s Jeff Tyler explains.

JEFF TYLER: Saudi Arabia is in the midst of expanding oil production by 11 percent, to meet rising demand from Asia. Some forecasts predict global demand will grow by 30 percent over the next five years, but Saudi Arabia has no plans to boost production further.

TOM WALLIN: In terms of what investment is planned and what investment is scheduled, they have their work cut out for them just keeping up with the demand growth that’s expected.

That’s Tom Wallin, president of Energy Intelligence. He says Saudi Arabia and other OPEC members are wary of expanding production in the face of a US recession.

WALLIN: They don’t want to make these big investments in new capacity until they’re sure, or they have reasonable confidence, that there’s going to be demand for them.

Oil producers remember the late 90s, when the economic meltdown in Asia reduced demand for energy and caused oil prices to crash. Paul Roberts is the author of “The End of Oil.” He doesn’t expect the bottom will fall out.

PAUL ROBERTS: We’ll definitely see oil cresting at 120, and I guess the question is, how much higher does it go?

Roberts says there comes a point when investors begin to question why Saudi Arabia does not increase production.

ROBERTS: If prices continue to go up, and they don’t bring new production on line to help ease those prices, the markets are going to begin to assume that they can’t bring production on line.

And if the markets perceive that Saudi Arabia can’t increase production, suggesting that its oil reserves are not as vast as imagined, that sense of scarcity could spur speculators to the point where $117 a barrel starts to sound like a bargain.

I’m Jeff Tyler for Marketplace.

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