The price of oil rose to $135 a barrel -- up a mere 463% since January 2001. If supply and demand has anything to do with it, prices will rise more. That's because demand is expected to rise 37%, while supply is optimistically forecast to grow half as fast by 2030.
Bloomberg News reports that the International Energy Agency (IEA) -- oil adviser to 27 nations -- is lowering its forecast of 2030's global oil production. Despite, the lower IEA forecast -- based on an analysis of the world's 400 largest oil fields -- it still forecasts an 18% production increase. But others believe -- in the face of a 37% growth in demand -- that oil production will not reach the heights predicted by the IEA's lower forecast.
Meanwhile, short term US supply is down. AFP reports that Wednesday's Department of Energy report showed US crude oil stocks fell in the week ended May 16, by 5.4 million barrels to 320.4 million barrels -- analysts expected a 300,000 barrel increase. Gasoline inventories dropped by 800,000 barrels, to 209.4 million -- a far cry from the expected 250,000 barrel gain.
Over the next 22 years, demand looks to outstrip supply. The IEA now forecasts 2030 global production of 100 million barrels a day (bbl/d), 15% less than its November 2007 forecast for 2030 of 116 million (bbl/d). Unfortunately, the IEA's new forecast is a mere 18% above 2006's 84.6 million (bbl/d) global production level.
It's unfortunate because demand looks to be growing faster. Last November the IEA forecast that global consumption would rise from 84.6 million (bbl/d) to 98.5 million (bbl/d). And by 2030 worldwide crude demand would be 116.3 million (bbl/d). It's unclear whether $200 a barrel or higher oil prices would alter either the supply or demand forecasts.
Some question whether even 100 million bbl/d is realistic -- believing that 95 million bbl/d is a stretch. But I think that information on what drives the price of oil -- including these supply and demand statistics -- is way too sketchy to make informed policy decisions.
That won't stop the price from rising -- it will just mean that the demand for insight about why oil prices are rising will continue to outstrip its supply.
Peter Cohan is President of Peter S. Cohan & Associates. He also teaches management at Babson College and edits The Cohan Letter
Steve & Barry's prepares to file for bankruptcy
Before the bell: Futures lower as oil rises, despite Alcoa earnings
Alcoa's Q2 2008 earnings transcript
Reader Comments (Page 1 of 1)
5-22-2008 @ 11:04PM
Darren said...
Ok, it is not about supply or demand, if the American Government was not hand in hand with the automakers, who are hand in hand with the oil companies, then we would have vehicles that got 70 to 80 miles a gallon, in the face of $5 a gallon gas, and be using alot less oil.
We have the technology but those greedy bastards are too busy filling their pockets. It even gets worse, The UNITED States of America is anything but that. People complain but will not stand together and do something about it. Our LEADERS, the same mayors, governors and senators we elected have yet for just one, one of them, to take a stand and start a rally to stop this fleecing of the sheep...and they call themselves leaders.
My friends it is truly time for another revolution and for our government to work for the people like the government itself reminds us when they read our constitution and throw it in our faces how much our forefathers wanted this to be a great nation.