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11/07/07

On the Road to $100 Per Barrel: "Back to the Future" with Iran

Press Release, Cambridge Energy Research Associates (CERA)

CAMBRIDGE, Mass. (November 5, 2007) -- With eyes focused on whether and when oil breaks through the $100 barrier, it turns out that $100 a barrel is really $99.04, at least in terms of the all-time record, according to Cambridge Energy Research Associates (CERA).

CERA, an IHS company (NYSE: IHS), finds that the inflation-adjusted high of $99.04 in today’s dollars -- $39.50 in 1980 dollars – was reached during the spring of 1980 when geopolitical turbulence in the Middle East, and Iran in particular, created acute uncertainty about the reliability and adequacy of oil supplies from the world’s most important oil exporting region.

“Today’s high prices have a ‘back to the future’ quality,” said Daniel Yergin, chairman of CERA and executive vice president, IHS. “Rising tensions today between Iran and the United States are, as in 1980, at the center of worries about oil supply.”

Following on the Iranian Revolution that toppled the ruling Shah of Iran, April 1980 saw: a failed U.S. attempt to rescue American hostages held in Iran; threats by Iran to choke off supplies from the Persian Gulf and oil fields set ablaze; and a suspension of Iranian oil exports to Japan. Just a few months later, war broke out between Iran and Iraq.

Today, growing tension over Iran ’s nuclear program--along with instability and uncertainty in Iraq --is casting a long shadow of anxiety and fear over the oil market, which is reflected in today’s high prices, according to CERA.

Crude Oil Prices 1975-2007  “Breaking the historical high of $99.04 per barrel will be a landmark in itself,” said James Burkhard, managing director of the Global Oil Group at CERA. “It will certainly have psychological impact since it will intensify momentum for the market to hit $100 per barrel. And it will have a concrete effect since it pushes the world economy deeper into uncharted territory—the oil price range which can contribute to an economic slowdown.”

CERA’s calculation of $99.04 is based on the April 1980 nominal average posted price of $39.50 per barrel for West Texas Intermediate.  This is a monthly average price since, at the time, there was no crude oil futures market to provide a daily price. Crude oil futures trading did not begin until 1983. The translation of the nominal prices into 2007 U.S. dollars is based on the U.S. Consumer Price Index using annual averages.

“There are different indexes and methods that can be used to adjust prices to inflation,” Burkhard said. “These methods can result in prices that are lower or higher than our $99.04 per barrel calculation. However, we believe that using an annual average inflation rate provides the best basis for comparison between 1980 and 2007, and that is what makes $99.04 the benchmark for today.”

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About CERA (www.cera.com)
Cambridge Energy Research Associates (CERA), an IHS company, is a leading advisor to energy companies, consumers, financial institutions, technology providers, and governments. CERA (www.cera.com) delivers strategic knowledge and independent analysis on energy markets, geopolitics, industry trends, and strategy. CERA is based in Cambridge, MA, and has offices in Bangkok, Beijing, Calgary, Dubai, Johannesburg, Mexico City, Moscow, Mumbai, Oslo, Paris, Rio de Janeiro, San Francisco, Tokyo and Washington, DC.

About IHS (www.ihs.com)
IHS (NYSE: IHS) is a leading provider of critical technical information, decision-support tools and related services to customers around the world. Our data and services are used in a wide range of industries, including energy, aerospace and defense, construction, electronics, and automotive. IHS translates the value of our global information, expertise and knowledge to enable customer success and create customer delight on a daily basis. Ranging from governments and large multinational corporations to smaller companies and technical professionals in more than 180 countries, customers rely on our offerings to facilitate decision making, support key processes and improve productivity. IHS has been in business for nearly 50 years and employs more than 3,000 people in 35 locations around the world.

© 2007, IHS is a registered trademark of IHS Inc. CERA is a registered trademark of Cambridge Energy Research Associates, Inc. All other company and product names may be trademarks of their respective owners. Copyright ©

2007 IHS Inc. All rights reserved.

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