Oil prices have gone over $49 a barrel in the last few days. Most experts believe that $50 a barrel is inevitable and that $60 a barrel is likely. But no matter what short term prices do, long term prices will remain under upward pressure, and here are some of the reasons why.

Saudi production slips

Despite pledges to increase its output, Saudi Arabia, OPEC's largest producer and exporter, produced about 9.13 million barrels a day of oil in July, down from 9.52 million barrels a day in June, according to Petrologistics.

The figures came as a bit of a surprise to analysts. In recent months, OPEC members had been producing nearly flat out to meet red-hot global oil demand, and officials have pledged to hike their output to keep the market supplied.

The production hike has cut into OPEC's unused capacity, and analysts have expressed concern that OPEC wouldn't be able to fill any supply gap caused by a supply disruption in a major oil producer such as Iraq or Russia.

The Saudis claim to have a million and a half barrel a day excess capacity that they can use if a shortage develops, but so far they have only come up with excuses as to why they aren't using it. Now, to have Saudi production actually decline is a sobering event. Half of Saudi oil comes from one huge field--Gahwar--and it is so old that it will inevitably go into decline in the near future, if it is not already in decline. The loss of production from Gahwar will be hard to replace.

And it that weren't enough to worry about, the world's second largets oil field--Cantarell is nearing a precipitous decline.

Originally the field had 35 billion barrels of oil in place. Now, in place oil is not reserves. They expect to get around 50% of that oil out of the ground to market. The field reached an early peak in production of 1.1 million barrels per day in April of 1981 from 40 oil wells. By 1994 the production was down to 890,000 barrels of oil per day. At that time, cumulative production was 4.8 billion barrels. In 1995 it was producing 1 million barrels per day and the Mexican government decided to invest in that field to raise the production level. They built 26 new platforms, drilled lots of new wells and built the largest nitrogen extraction facility capable of injecting a billion cubic feet of nitrogen per day to maintain reservoir pressure. Doing this raised the oil production rate in 2001 to 2.2 million barrels per day. Today the field produces 2.1 million barrels.

To put this amount of production into perspectives, the largest field discovered in the US Gulf of Mexico will produce about 250,000 barrels per day. That field has about a billion barrels of reserves. If I were to find a field of that size, the company I worked for would probably make me president. For the world production, Cantarell represents 4 of the largest fields ever found in the US side of the Gulf. In 50 years of exploration in the US side of the Gulf of Mexico, only one one-billion-barrel oil field has been found. ...

Supergiant Cantarell continues to be the mainstay of Mexican oil production, with 2.1 MMb/d of output in 2003 up from 1.9 MMb/d in 2002. However, Cantarell is expected to decline rapidly over the next few years, falling as far as 1 MM b/d by 2008. This has given particular urgency to Pemex's efforts to develop other fields and move into deepwater.

Those two fields, Gahwar and Cantarell, produce close to ten percent of all the oil pumped in the world. The ramifications of both of them going into decline would be enormous.

But that's still not all of the story. World wide demand for oil continues to soar, especially in China.

Just a quick glimpse at the figures involved makes clear the dimensions of the problem. China's economic growth has bubbled along at a steamy pace of 8 to 10 percent a year for the past decade.

With that growth, private auto sales in that vast nation have skyrocketed from token levels 10 years ago -- only 220,000 were sold as recently as 1999 -- to nearly 2 million this year. Last year alone, China's automobile sales increased by a staggering 69 percent.

It's estimated that China could have nearly 30 million automobiles by 2010. By 2030, China is expected to have more cars than the United States and import as much oil as the U.S. does today.

Already, China has overtaken Japan as the world's second biggest importer of oil, after the United States. And its appetite is huge and growing. As Daniel Yergin of Cambridge Energy Research Associates puts it, "China has gone from being a minor player in world commodity markets, if a player at all, to being the decisive dynamic factor today. In terms of oil, 40 percent of the entire growth in oil demand since the year 2000 has been China."

In this quarter alone, China's demand for oil is projected to increase 21 percent. That follows a 19-percent increase during the first quarter of this year.

But, of course, speculating about how many cars China will have in 2030 is silly. There is not enough oil in the world for two United States--especially with the two largest oil fields in the world poised to go into decline. If China does produce more cars than the U.S. by 2030, neither nation will have the oil supplies to run them.