Preview: Oil price puts users, producers in fragile detente

MEXICO CITY/NEW YORK Fri Mar 26, 2010 12:58pm EDT

MEXICO CITY/NEW YORK (Reuters) - Energy producers and consumers are experiencing a rare moment of harmony now that oil prices have stabilized near $80 a barrel, but deep conflict over how to keep markets stable lurks below the surface.

Oil consumers demand more access to reserves, while sellers fear that financial speculators, climate regulation and a move away from oil to alternatives could threaten their main source of revenue.

These issues will be at the forefront as ministers and top energy executives from up to 64 countries meet next week for the biannual International Energy Forum (IEF) at the Mexican resort of Cancun. Both sides endorse, or at least do not reject, what Saudi Arabia this month called the "beautiful" price of oil.

Consumer countries, including top user the United States, have recently broken with the past by abandoning pressure on OPEC to increase oil supply and lower prices, calling instead for price stability, a goal long championed by OPEC.

"We want the price (of oil) to be as open and transparent as possible and we want a stable price," U.S. Energy Secretary Steven Chu said in the United Arab Emirates in February.

The focus on curbing price volatility in energy markets comes as global economies struggle to emerge from the worst economic downturn since World War II, and as both sides seek to avoid a repeat of the oil market turbulence of 2008, when crude surged to a record $147 a barrel, battering consumers, before plunging to $33 and squeezing producers.

While both camps may agree on oil prices and the need to combat market volatility, they are far apart on how to achieve long-term price stability.

Any fresh spike in oil prices could reopen the divisions that were in plain view as the groups last met at the IEF in Rome two years ago, when oil prices topped $120 a barrel.

"Everyone might be okay with oil prices at the moment, but the factors that pushed oil above $140 a barrel are still there," said Brad Samples, analyst at Summit Energy in Louisville, Kentucky.

RETURN OF $100 OIL

Analysts have been ratcheting up their price forecasts and now see oil averaging $78.91 in 2010 as the global economy recovers, according to the latest Reuters poll.

For some, the potential for $100 oil has come back into the picture, a price range that could stoke concern about derailing a fragile economic recovery.

"Later in the year, our price target of $90 means intraday blips to $100 are not impossible," said Lawrence Eagles at JP Morgan.

Friday in New York, benchmark West Texas Intermediate crude was trading at $79.79 per barrel around midday.

Consuming countries -- and the world's biggest private oil majors -- will likely plead for more access to world oil reserves and favorable investment terms to secure long term supply growth in oil-rich regions.

ExxonMobil (XOM.N), ConocoPhillips (COP.N) and other majors have seen access to reserves limited in recent years by oilfield nationalizations in Latin America and other regions. More than four out of five barrels of global reserves are now under control of state-controlled, national oil companies.

Producers, including OPEC, will be keen to extract guarantees their markets will not be threatened by climate legislation and the rise of oil alternatives.

RISE OF CHINA

A major reshaping of global oil market dynamics is already dividing consuming nations. The International Energy Agency believes developing nations will consume 47 percent of the world's oil in 2010, up from just over a third a decade ago, while demand in the developed world has likely peaked.

The United States has seen its special relationship with major energy producers, such as Saudi Arabia, eroded by the rise of China and its own efforts to cut oil use and turn to alternative fuels. China and other developing countries are racing to secure their own energy supplies, often at terms rejected by Western consumers.

Producers and consumers alike may voice support in Cancun for efforts to curb oil price speculation. OPEC has long complained about the impact of financial markets on energy prices, and may cheer on government efforts underway in the United States and Europe to impose position limits on financial traders in commodities markets.

"OPEC claims that speculation reduces its control over prices," said Sarah Emerson of Energy Security Analysis Inc. in Boston. "They will be interested in where banking regulations are going."

(Editing by Alden Bentley)