Rising power use in the Middle East should draw oil supplies away from the international market again this summer and help drive up prices, a Lehman Brothers official said.
World markets could have lost 1 million barrels per day (bpd) of oil last summer, according to Edward Morse, Lehman's chief energy economist, as Middle East power plants were forced to burn crude and natural gas redirected from enhanced oil recovery projects as summer demand for services for air conditioning rose.
"The Middle East now appears to require more hydrocarbons being devoted to power generation than had been the case historically as power needs grow," Morse told reporters at the Lehman Brothers Commodity Round Table.
"If you look at Saudi Arabia, Abu Dhabi or the Emirates and Kuwait combined, I think a good number is world markets lost 1 million bpd for July and August, and the process probably started in May."
The lost Middle East exports and disruptions from Mexico, probably helped drive up oil prices last fall more than the flow of money from hedge funds, Morse said.
The fall in freight rates last summer was one sign exports from the oil-rich region were being curbed, he said.
New regional production and plans by Kuwait to import half a billion cubic feet per day of natural gas for six months should ease the strain by next year, Morse said.
Supplies could tighten again this summer if the region faces another season of above-average temperatures.
"There certainly should be enough crude oil, condensate and natural gas in combination to eventually catch up, and I think it is probably going to catch up in the summer of 2009," he said.
"I don't see it easing this summer."
Lehman increased its price forecast for the second, third, and fourth quarters for Brent crude, in part to reflect the Middle East constraints, after prices average $96.31 in the first quarter.
The bank now expects Brent to average $85 a barrel in the second quarter from previous forecasts of $85 a barrel, $105 in the third quarter against earlier calls for $90, and $80 in the fourth quarter from $75 previously.