Oil Supply Capacity Will Be a "Defining Factor" for Oil Market

Source:

"Notwithstanding the weakness in oil demand and prices, oil supply capacity will expand as new supplies, already under development, come to market."

The world oil market is being shaken by "a recession shock" that affects all conventional, alternative, and renewable energy," said the chairman of Cambridge Energy Research Associates (CERA).

In a report released at the London Energy Meeting in the UK, Daniel Yergin, also executive vice-president of the IHS information solutions group, said, "The oil price today is the barometer measuring a progressively weaker global economy."

Oil prices have been volatile "on an unprecedented scale" in 2008. U.S. demand for gasoline peaked in 2007 and was beginning to decline before the economic crisis broke, but "demand responses were discounted or ignored" in markets where oil is traded, he said. Nevertheless, demand decreased in the face of higher energy prices, "except in those parts of the world where retail fuel prices are controlled or subsidized," CERA reported. The analysts expect total U.S. oil demand in 2008 to be at least 1 million b/d less than in 2007

The report goes on to say that notwithstanding the weakness in oil demand and prices, oil supply capacity—the difference between total liquids production capacity and actual output—will expand as new supplies, already under development, come to market. That surplus in spare capacity will be a "defining factor" for the oil market.

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