The Associated Press
WASHINGTON | Market speculation on energy prices may have added as much as 10 percent to crude oil costs and the peak may be yet to come, a top Energy Department official said Tuesday.
Guy Caruso, head of the department's Energy Information Administration, told a Senate hearing that supply and demand would suggest a price of about $90 a barrel.
Prices fluctuated around $102 a barrel Tuesday -- although futures prices later dropped below $100 a barrel on the New York Mercantile Exchange -- on word that the Organization of Petroleum Exporting Countries are likely to keep production as is when they meet on Wednesday. Oil prices had surged to $104 a barrel on Monday.
President Bush, meanwhile, chided OPEC for failing to pump more oil as energy prices soar and the U.S. economy slumps. "My advice to OPEC is understand the consequences of high energy prices," Bush said after an Oval Office meeting with Jordan's King Abdullah II.
"I think it's a mistake to have your biggest customers' economies slowing down as a result of higher energy prices," Bush said.
Caruso said that supply and demand cannot account for all of the recent price surge.
"Something is clearly going on," he told the Senate Energy and Natural Resources Committee.
Caruso said that in the long run oil prices are forecast to decline, but he acknowledged any short-term predictions are uncertain and prices could increase further.
"I think it's difficult to say whether this is a peak because there's so much uncertainty," said Caruso.
Sen. Byron Dorgan, D-N.D., asked Caruso to explain the recent surge in oil prices.
"I am fairly well convinced that in the short term what we have is an unbelievable orgy of speculation," Dorgan said.
"There's clearly been a surge in moneys coming in to commodities markets, including energy, which has had some upward effect on the price above the trendline," Caruso responded. He said it was difficult to say whether speculation contributed $5 or $10 to the most recent surge, but that his agency's estimate of where prices should be, based on supply and demand, was about $90 a barrel.
Caruso said higher oil prices also stem in part from strong global economic growth, shortages of experience workers, equipment and construction material in the oil industry, and political instability in regions of major oil production.
Energy analysts also have cited the shift of money from the stock market to the commodity markets, including energy, as well as the declining value of the dollar and political turmoil in the Middle East, Nigeria and Venezuela, and a buildup of military forces on the Venezuela-Colombia border in recent days.
Caruso said his agency's forecast shows oil prices declining over the next eight years, and then resuming an upward direction.
The Energy Information Administration's long-term energy forecast expects oil prices to average $57 a barrel by 2016, declining because of increased production of crude oil and availability of alternative fuels including ethanol. But then increased demand is projected to push crude prices higher again to an average of well over $100 a barrel by 2030.
That brought a skeptical response from some senators.
"We're looking at $100 barrel today. I'm not confident in these projections in any way shape or form," said Sen. Kenneth Salazar, D-Colo., adding that he would not rule out $100 oil through 2015.
Caruso acknowledged difficulty in predicting short and long-term prices given today's price volatility.
"In the long run we do think...that high prices do stimulate investment on the supply side," he said. "We do think that over time the (fundamental) economics should prevail."
"It's our view that the longer term impact of the current high oil prices will lead to more exploration and development and investment." But Caruso noted the EIA has hedged its numbers for 2030. It said crude oil prices could be $111 a barrel by 2030 under one economic scenario, but as much as $185 a barrel under another set of economic assumptions.
