Not that I’ve necessarily said it here, but elsewhere at least, I have said that our efforts to lower oil prices by cutting demand are potentially foolhardy. It sounds good in theory, but OPEC can pretty much offset whatever we do. If they match consumption cuts with output cuts then we shouldn’t expect the price to go to $30/bbl and stay there anytime soon. It looks like that might be happening.
The good news:
The International Energy Agency (IEA), an intergovernmental body which advises rich countries, thinks that global oil consumption will fall by 2.6m barrels a day (b/d) this year, or about 3%
The bad news:
OPEC has announced three separate rounds of production cuts since September in a bid to steady prices. In all, it has vowed to trim its output by 4.2m b/d. Analysts reckon its normally ill-disciplined members are indeed pumping some 3.3m b/d less.
If the US is any indicator, stocks of fuel have peaked and are starting to be drawn down, potentially reflecting the quantity-supplied-quantity-demanded imbalance.
Potentially more good news:
That leaves [OPEC] with as much as 6m b/d of spare capacity to bring back into use should demand pick up. Saudi Arabia alone says it could pump 4.5m b/d more than it is now.
That’s good news because with that much spare capacity, people will be a little less likely to freak out.
In other oil/energy news, it took me a few minutes to figure out how the following paragraphs worked together. The interceding paragraphs, as well as all the following paragraphs, were all about oil and gas development.
The International Energy Agency on Wednesday repeated its warning that reduced investment in energy could result in future supply shortages and a new oil price spike in a few years’ time…
IEA chief economist Fatih Birol had already told Platts in a May 20 interview that lower investment as a consequence of the global economic crisis threatened future energy security as well as the effort to combat climate change.
For the life of me, I couldn’t figure out how oil and gas investment were important to combating climate change. It appears that one has to ignore that the whole rest of the article is written about oil and gas development and be careful to note that the opening paragraph only refers to general “investment in energy.” So there you go. News you can use. If you under-invest, you could end up with not enough.