Posted: November 16, 2007

Everybody wants to know which way oil prices are headed next - not just traders and speculators but also every person in charge of a corporate or household budget.

There is at least one obvious reason why oil prices could soon hit $150 a barrel, namely: some sort of military confrontation between the United States and Iran. But there is another, unseen reason why prices could go that high in the coming months.

As explained by Charles Maxwell, the distinguished oil analyst at Weeden & Co., back in the late 1970s and early 1980s the politicians in oil-producing countries usurped the decision-making process in their state-owned oil companies. Investment decisions vital to maintaining production became the province of politicians who, despite owning the oil, believed that Western oil companies should pay for maintaining their oilfields.

After more than a quarter century of this, Maxwell’s fear - which he originally shared with EnergyTechStocks’ managing editor in 2006 - is that Middle Eastern oilfields have not been properly maintained for a long time. If this is true, then no matter how much oil is still in the ground in the Middle East, actual production could drop quickly and sharply, and oil prices could take off on market fears of a growing imbalance between global oil supply and demand. It’s important to note that despite the sharp rise in global oil demand in the last couple of years, OPEC production has essentially treaded water.

Is $150 oil right around the corner? Given OPEC’s secrecy, it’s impossible to know at this point.

The current situation in Mexico could be the proverbial canary in the coal mine. After years of politicized decision-making, Mexico’s oil industry is in big trouble. The world’s second biggest oil complex, Mexico’s Cantarell, is experiencing a sudden sharp decline in production.

Whether or not Middle Eastern oilfields go the way of Canterell in the coming months, as Cantarell’s production continues to drop - and as oil traders increasingly factor in the loss of one of the U.S.’s most important sources of imported oil - oil prices may rise anyway to $100 a barrel or higher.

Oil’s Next Big Move: The Unseen Reason Why $50 Oil May be Right around the Corner