09/09/2008 (Dow Jones), Singapore - New exploration prompted by high oil prices in recent years will lead to a substantial increase in proven and accessible oil reserves in the next two to three years, said  James Fry, chairman of London-based commodities consultancy LMC International.

"Exploration triggered by high prices should cause a big rise in reserves of both tar sands and conventional reserves," Fry said at the World Oils and Oilseeds Convention Tuesday.

He said the development of new oil sources should boost the reserve-demand ratio by 2010, potentially leading to the return of lower oil prices by 2012-13. He, however, didn't say how much he expects oil prices to fall.

On the demand side, Fry said the rapid decline in the use of gasoline in response to high prices over the next few years "should tip the fuel market's balance back toward plentiful availability."

Fry's comments come at a time when the Organization of Petroleum Exporting Countries or OPEC is already under pressure from some of its members to cut output to support falling prices.

OPEC is meeting in Vienna later in the day and some analysts say the cartel may not officially cut output Tuesday, although there could be unofficial cuts, especially by those members who were  producing more crude than allowed by their official quotas.

Amid falling demand in the United States, the biggest consumer of oil, and a rising dollar that has made dollar-denominated commodities cheaper, crude has fallen steadily since early July, from an all-time high of $147.27 per barrel tested July 11.

At 0630 GMT, light, sweet crude for October delivery was trading around $105.24/bbl on the New York Mercantile Exchange, while brent crude on ICE was trading around $102.22/bbl.

CPO To Remain Closely Linked To Crude Market
Since January 2007, crude oil's price has emerged the most significant determinant of crude palm oil prices, displacing CPO stocks as the key driver of price trends, Fry said.

CPO prices in Southeast Asian markets is now close to brent crude prices and are likely to maintain that close link in the months ahead when winter demand for both crude oil and CPO is likely to be weak amid prices that are historically still high despite  recent declines.

Meanwhile, within the oilseeds complex, the large premium enjoyed by seed-based oils relative to palm oil will diminish gradually, as palm oil output slows while oilseeds output is expected to surge.

However, the plan to increase the usage of biofuels, blended with conventional fuels, will continue to face capacity constraints, Fry said.

If a global mandate of a 5% blend of biofuels in transportation fuels is implemented by 2020, the world will need to find an additional 100 million hectares of land to grow all the crops needed  to meet the world's food, feed and fuel needs, he said.

Such an increase in acreage is difficult as availability of farm land in the U.S, the European Union, China and India is already limited, he noted.

The world will need only 50 million hectares of additional land if the same mandate were to be met using only palm oil and sugarcane, the feedstock for biodiesel and ethanol respectively, he said.