There's a fundamentally different outlook about world oil-demand growth in 2008 between OPEC and the International Energy Agency (IEA), the principal energy-forecasting organization of non-OPEC countries. And, depending on which organization is correct in its projections, the market could see oil prices next year either moving in a steady range of $65 to $75 per barrel or soaring to between $80 and $90.

This is the assessment of Bernard J. Picchi, senior managing director and energy equity-research analyst for Wall Street Access, a New York-based registered broker-dealer.

"Not surprisingly, since this year is more than half-over, there's little difference between the two organizations' outlooks for 2007," says Picchi. He notes the IEA and OPEC both peg global oil demand this year at 85.6 million barrels per day.

However, there's a big difference in the estimates of the two organizations when it comes to 2008 world demand. And it's a perceptual difference that will shape OPEC (i.e. Saudi) production policy for the remainder of this year-a period of inventory building in advance of peak winter demand, the analyst contends.

"OPEC believes that world oil demand in 2008 will be about 1.2 million barrels per day below the IEA forecasts; further, it sees non-OPEC production about 400,000 barrels per day higher than the IEA estimates," says Picchi.

"In effect, OPEC economists see no increase in the demand for its members' oil next year in contrast to the IEA which does see demand growth; OPEC is [therefore] fearful of raising production-it does not want a repeat of the price collapse that occurred earlier this year."

In this knife-edge balancing of oil supply with demand, one organization is correct and the other is wrong, he asserts.

"If OPEC is correct, then its deliberate and careful response to rising oil output will be vindicated in a rather steady range of oil prices-our guess is $65 to $75 per barrel-even in the face of slow demand growth."

But, he warns, if the IEA is correct in its more bullish take on 2008 demand, "then it's entirely possible, indeed likely, that oil prices late this year and early next year could move into a new price range-perhaps $80 to $90 per barrel or higher, at least for a while-with energy shares going along for the ride."

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