GLOBAL oil markets are in turmoil. In a sustained and exceptional bull-run, US crude has risen from less than $20 a barrel in beginning of 2002 to an unprecedented height of $120. Emerging economies, with a high per capita consumption of oil and because of users’ inefficiencies are the worst affected.

The soaring oil price is a growing risk to the momentum of growth of medium and low income nations –Pakistan included. Those suffering the most are the poor nations admits, Fatih Birol, the IEA’s chief economist. “Of course there is an impact on the economy. The greatest impact is on poor, oil importing countries,” he said, citing oil importers in Africa.

For the moment both, the energy producers and consumers appear in broad agreement that there is enough oil in the market in the immediate term, yet the prices are soaring.

The Opec Secretary General HE Abdalla Salem El-Badri while addressing the 11th International Energy Forum (IEF) in Rome spoke about the need for demand security in an ‘increasingly inter-dependent energy world.’

The oil is there, said Mr Badri, particularly in Opec member countries, but ‘minimising uncertainty’ by ensuring ‘appropriate demand conditions’ is necessary to alleviate the investment fears of operators.

The Opec estimates the annual average rate increase of world energy demand to be 1.7 per cent. Fossil fuels would still be meeting more than 85 per cent of the world’s energy needs, because alternative fuels have yet to be developed to their full potential.

“There are no viable substitutes in such quantities on even the most distant horizons,” said Mr Badri, adding “oil and gas will make up more than 60 per cent of the energy needs of the world as the increase persists.” The anticipated annual average growth rate will bring worldwide production to118 million bbl/d by the year 2030.

“Scenarios we have prepared, based on plausible higher and lower world economic growth assumptions, show that, even by 2020, there is an estimated range of uncertainty for required investment upstream by Opec producers of around $270 billion,” said Mr Badri. “Without the confidence that additional demand for oil will emerge, and without the market signals that long-run prices are supportive, the incentive to invest can be affected.

“Just like anyone else, oil producers do not want to invest in capacity that will not be used.” Mr Badri also noted that upstream costs have increased two-fold since 2005. Also, the graying of the workforce in the oil and gas industry is creating a shortage of skilled personnel, as much of the workforce rapidly approaches retirement.

However, Mr Badri has no doubt about the abundance of resources. “There is no doubt that the world has enough resources of oil to satisfy consumers for decades to come.

“Estimates from the US Geological Survey of ultimately recoverable reserves have practically doubled since the early 1980s, from just under1.7 trillion barrels to over 3.3 trillion barrels -- while cumulative production, during the same period, has been less than one-third of this increase.”

The Opec has in the meantime, made it clear, it would not open its taps further. Saudi Arabia, the Opec kingpin, has reiterated that in view of the current market dynamics; it does not intend to expand its production capacity further – from what is already under execution.

As per estimates, Saudi Arabia currently has a capacity to produce around 11.3 million barrels per day (bpd). Its current output stands at around nine million bpd and as per projections, Saudi Arabia is working to raise its capacity to 12.5 million bpd by 2009. Saudis do not have a plan at the moment to raise their output further, because they do not see any additional market for their fuel at least until 2020. Saudi Arabian oil minister told an industry magazine it has no plans to embark on further capacity expansion as long-term oil demand forecasts were falling and alternative fuel supplies seem to be growing.

With varying perception of demand security, high oil prices do not appear to have been translated into extra supplies and oil producers have been complaining of a rally across commodities and a shortage of skilled workers to have increased the difficulty of new exploration and production projects.

The weak dollar, worries about terrorism and speculation on commodity markets certainly played a role. But, of course, so did demand. Producers are struggling to pump as much as they can to quench the thirst not only of the developed world including the fast-growing economies like China and India.

Analysts are of the view point that crude markets are in for a sustained bull run. Manoucher Takin, from the Centre for Global Energy Studies, London, said it was the low level of crude oil inventories around the world that had made the international market panic. “There is a very low level of inventory in oil and oil products, which is also another factor in the increase in the price of crude oil.” He also said the falling value of the dollar has contributed directly to increase in the cost per barrel of crude oil.

For one thing, the world’s oil supplies are already stretched. Countries outside of the Opec cartel - which have been the main source of new oil discoveries and production since the 1970s - have said they expect little to no growth this year in oil production.

The North Sea and Alaska are slowly running out of oil and producers. They are struggling to keep production from falling. Russia’s phenomenal oil surge is coming to an end; a top executive of Lukoil, the country’s second-largest oil group, said last week that the country’s production was unlikely to grow much. Nigeria is battling a violent militancy. And Mexico, the third-most-important supplier of crude to the United States, has been stuck in a crippling political debate over keeping out foreign investors while witnessing a dramatic drop in production.

Consequences are starting to emerge. Non-Opec oil production is already well below the level anticipated earlier and was more than 0.5 million bpd lower than last year during 1Q08. Some such ventures as the London based CGES project is to grow by just 600,000 bpd in 2008, as delays, declines and under-performance take their toll.