NIGERIA - The Global Petroleum Perspective.

President Obasanjo, like the rulers of other oil exporting countries, is pleasantly surprised by the way Wall Street investment banks and other global funds are talking up oil prices. They are doing this through speculative dealing in energy futures - despite the fact that high oil prices have begun to weigh heavily on the global economy, which should have adverse effects on these players, and that half the current value of WTI is a mere fear premium.

High crude oil prices in the US have caused world gasoline and diesel costs to rise above the tolerance level of an average upper-class consumer anywhere in the world. Even fast-food delivery costs to individuals in the US now include a hefty "fuel surcharge". SUVs dominate the American streets and highways, with many of the recent owners of these gas-guzzling vehicles having bought them virtually for free. SUVs dominate the long queues in front of petrol stations in the US - although most of the motorists now complain that their fuel bill is hurting. There is much rationing for diesel and gasoline in China, because of high US crude oil prices.

Goldman Sachs Commodity Research (GS) - a dominant player in the commodities markets including oil futures - on Aug. 18 said it had raised its long-term WTI price forecast by $15 to $60/barrel from $45, to reflect the rising financial risk of getting extra oil out of the ground. Long-dated WTI is an indicator of the cost of extracting incremental crude oils - with emphasis on WTI-like light/sweet grades which are in short supply.

Long-term WTI contracts trade alongside short-term futures, which on Aug. 12 shot to a record of $67.10/b. Five-year WTI traded around $58/b on Aug. 18. GS said it expected five-year WTI prices to stay about $60, a level they hit several days ago, compared with about $35 a year ago. It blamed sustained high oil prices on chronic E&P under-investment and said even with oil prices near record levels, the petroleum industry was still sitting on huge cash reserves rather than spending money on new projects. Its research note said: "Even at current high price levels, re-investment rates appear to be falling, not rising, pushing [oil] industry cash reserves near $500 billion".

GS blamed the lack of investment on E&P cost uncertainty, saying: "With the potential for costs to fall or a competing technology to prove less expensive driving long-term prices lower and making higher-cost investments unprofitable, investors are motivated to delay investment and need a premium in long-dated [WTI] prices to compensate for the increased investment risk". Among factors adding to the cost uncertainty are barriers to accessing reserves in oil-rich nations and rising project complexity as more easily extractable crude oil runs out.

Starting from $2.35/gallon and then for ten days in a row to Aug. 18, gasoline retail prices in the US set new records, with the fuel's inventories at a new five-year low. Refiners are having trouble keeping up with demand. A recent survey found that more than a third of AAA's members had started looking for ways to cut back, including car-pooling, bicycling or walking to work. But those reported changes in driving habits had not cut overall demand.

Americans have been burning through gasoline at a rate of 9.5m b/d over the past month, up from 9.4m b/d this time last year, according to the EIA. "We've been setting new record high...[gasoline] prices since 2000, and consumption has continued to increase", said AAA spokesman Geoff Sundstrom. US refineries operated at 93.5% of capacity in recent days, down from over 95% the week before.

Pump prices soared to a record of over $2.60/g nationwide on Aug. 19; and some areas already saw prices at or above $3/g. One motorist paid $3.03/g to fill his Toyota on Aug. 16 in Makawao, Hawaii. But Hawaiian motorists, who pay the highest prices in the US, will get some relief as the state becomes the first in the US to put a price cap on gasoline. The law, in effect from Sept. 1, allows the state Public Utilities Commission to set a maximum wholesale price for gasoline in Hawaii, based on the weekly average of spot prices in Los Angeles, New York and the US Gulf Coast. The law will not put a cap on retail prices, though. But US gasoline demand will begin its seasonal decline after Labour Day, when the summer driving season winds down. The next worry is heating oil and diesel for the winter months, with this year's tropical storms in the US predicted to be frequent.

Due to heavy taxes on gasoline, European drivers pay much more. In Norway, prices recently toped $7/USg. Taxes can make up more than two-thirds of the pump price in some European countries. But drivers in some Asian and Middle Eastern countries get off easier at the pump - thanks to heavy government subsidies which keep gasoline below world market prices. In Iraq, where one will find the world's cheapest gasoline, one can top off for as little as 5 cents/g. Last year, the Iraqi government spent $3 bn on gasoline subsidies, an expenditure the IMF says threatens the country's fragile Iraqi economy. Other countries which subsidise gasoline have gradually begun lifting prices. China raised prices 4.5% in June to $1.63/g. India raised retail gasoline and diesel prices in June, the first increase since last November.

A widely-watched gauge of future economic activity in the US rose 0.1% in July, a sign that higher oil prices are beginning to hurt the economy's growth prospects. US wholesale inflation in July took its biggest leap in nine months, due in part to the hit consumers were taking at the pumps. Shoppers hit with high gasoline prices are beginning to cut back elsewhere in their family budgets. Wal-Mart's second-quarter revenues fell short of forecasts and the retail giant put part of the blame on higher gasoline prices cutting into its customers spending power. Wal-Mart warned earnings in the third quarter would be below analysts' forecasts.

Many US home owners face sharply higher heating bills this winter. Natural gas prices have nearly doubled - wholesale prices jumped to $9.73/m BTUs last week, up from $5.13 this time a year ago while heating oil prices jumped nearly 19 cents to $1.88/g, up 69 cents from a year ago. That big jump is making it tough for heating oil dealers to lock in winter contracts with their customers. Most dealers begin offering a fixed price through the winter, but the recent run-up has made it difficult to predict where prices will be six months from now.

Customers who lock in now risk seeing prices pulling back, however, and thus paying more than they should. A lot depends on how cold the weather is this winter. Heating oil inventories are in pretty good shape for this time of year, according to EIA figures. But a prolonged cold snap could stretch supplies, touching off further price rises this winter. Yet it is the speculators in oil futures trading across the Atlantic who should be the main source of worry for those who are usually hurt by high fuel prices - back to GS' grim price forecast.

Petrobras on Aug. 18 said it will export ethanol made from sugar cane to Nigeria and help the African country build a programme to blend ethanol into its gasoline. A Petrobras delegation was in Abuja to discuss this and other aspects of co-operation with NNPC. Petrobras does not produce ethanol but buys it locally and sells it overseas. Petrobras has started monthly ethanol deliveries to Venezuela, which is blending ethanol into its gasoline to make it cleaner.

Brazil blends 25% of ethanol into regular gasoline as an increasing number of cars in the country run on pure ethanol or a mixture of ethanol and gasoline. Ethanol is available at most gasoline stations throughout Brazil, the world's biggest ethanol and sugar producer.