Oil prices rose above $40 a barrel on Monday, boosted by the weak dollar and Israeli attacks on Hamas that served as a reminder of tensions that could threaten Middle East crude oil supplies.

U.S. light, sweet crude was up $2.75 at $40.45 a barrel by 1335 GMT, below a session high of $42.20.

Oil is on track for a nearly 60 percent loss this year, the biggest annual fall since futures began trading 25 years ago.

London Brent crude rose $2.88 to $41.25 a barrel, after touching a session high of $43.18.

“Geopolitics had disappeared from the oil scene for the last couple of months but will regain some price premium with the latest Israeli attack in Gaza,” Olivier Jakob, of consultants Petromatrix, said in a research note.

Israeli aircraft attacked Hamas targets in Gaza on the third day of an offensive that has killed more than 300 Palestinians, many of them civilians.

The attacks enraged Arabs across the Middle East and highlighted the risk, however remote, that the conflict could threaten oil supplies from the region.

Gold rose nearly 3 percent to its highest since early October on the weak dollar and the Middle East violence.

The dollar fell broadly, pressured by the gloomy outlook for the U.S. economy.

“The level and intensity of violence this time has warranted a fiercer response from the broader Arab world and beyond,” said Raja Kiwan of energy consultants PFC Energy.

Kiwan said, however, that the amount of bearish economic news would ultimately overshadow such geopolitical factors.

OPEC COMPLIANCE

Oil is down more than $100 a barrel from a record peak of more than $147 in July, depressed by the downturn in the world economy, which has hit demand for fuel.

Prices had broken a nine-session losing streak on Friday partly on evidence of OPEC compliance with its biggest ever production cut agreed earlier in December to try to halt the market’s slide.

Libya has told oil firms to curb output by 270,000 barrels per day from Jan. 1, more than the reduction it needs to make under OPEC’s agreement to cut output.

The Abu Dhabi National Oil Co, the UAE’s main producer, said it would cut January and February oil exports by much more than some refiners had expected.

The allocations were among the first concrete examples that OPEC exporters were implementing the Organization of the Petroleum Exporting Countries’ Dec. 17 deal to cut supplies by 2.2 million barrels per day.

Saudi Arabia, the world’s largest exporter, had informed its customers of cuts even before the meeting.

OPEC has cut output three times in an effort to remove about 5 percent of world supply to halt the slump.

China’s energy chief said the world’s second-largest oil user after the United States would take advantage of falling oil prices to boost imports and build up its fledgling oil reserves.

Jane Merriman LONDON, Dec 29 (Reuters)

But there’s been a startling change that means resources and assets could be lucrative for investors for a long, long time.

That’s because the world’s population is exploding, meaning we’ll need more roads, more houses, more resources to satisfy this growing population. Now that growing demand runs smack into the question of supply, is there enough energy…enough water…enough food?

It doesn’t seem like it. The number of people on Earth is set to grow by 50% in the next century or so — an unprecedented explosion.

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Just consider that the human population reached the billion mark sometime in the 1800s. That was double the number that occupied the planet in 1500.

But then the Industrial Revolution came. And by 1900, the world’s population had increased to over 1.5 billion people. In just 30 years, the world had added half a billion people.

By 1930, the world’s population reached two billion people. Fifty years later, it had doubled again to four billion. And in 2000, there were six billion people on Spaceship Earth. By 2030, there could be over eight billion people — a 300% jump in a century!

Of course, the “optimists” claim there won’t be that many, because war and famine will weed many out. But let’s say we’re not that “lucky” — and that we’ll need to find a way to feed, clothe and house eight billion.

Scientists say that to support projected population increases, the world will have to quadruple its agricultural production and increase its energy output by a factor of eight. Meanwhile, 150 years after the Industrial Revolution began, man is beginning to drink down the Earth’s wellspring of natural resources.

But it’s not just that we have more people in the world — it’s what these people are consuming. Currently, the Western world, with just 20% of the world’s population, uses 80% of the Earth’s water, mineral and petroleum resources. But the rest of the world is itching to catch up.

According to the most recent data from the U.S. Energy Information Administration, oil demand for countries in the Organization for Economic Cooperation and Development — which includes developed nations like Japan, Germany and the United States — has gone up 14% since 1980. Oil demand for the rest of the world, however, has skyrocketed 43%. That’s more than three times as fast!

Unfortunately, there’s no way for supply to keep up.

The Supply Picture

The fact is, the heyday of finding new giant resource supplies is over. There hasn’t been an elephant oil field (more than a billion barrels in reserves) discovered in almost 20 years. You have to go back 30 years to find an elephant outside of the Middle East.

In fact, according to a study by PFC Energy, a petroleum advisory firm, the larger integrated oil companies spent about 24% of their cash on dividends last year, 12% on share buybacks and 12% on paying down debt. Only 46% went into capital spending.

The study goes on to say that as a share of exploration and production expenses, spending on exploration has declined over the last decade or so and now accounts for about 20% of the total, down from 30% in 1991! Meanwhile, oil prices continue to set new highs.

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Minerals are in the same boat. Companies have realized there are fewer resources out there. According to the Metals Economics Group, the total spent on worldwide nonferrous exploration in 1997 was $5.2 billion. In 2004, the total was $3.8 billion — a 27% drop. In the same time frame, gold prices have shot up 21%…and silver is up 48%.

Instead of exploration, what you’re seeing is a wave of mergers and acquisitions throughout the natural resources industry. China’s recent attempt to buy Unocal is just one example. We’ve also seen a lot of mergers in industries like precious metals. In 2004, things got ugly as miners Wheaton River Minerals, IAMGOLD, Coeur d’Alene Mines and Golden Star Resources engaged in a series of hostile takeover bids for each other. It just shows how desperate miners are to increase their reserves through acquisitions.

So why are companies choosing to buy up other companies, rather than spending money to find new reserves? Maybe it’s because they know spending a lot of money searching could be fruitless.

Yours for resource profits,
Kevin Kerr