Demand much ahead

Oil prices have been down and up recently. Let's look at what the prospects are. According to the International Energy Agency's Oil Market Report for September its preliminary estimate for world oil production in August was 89.1 million b/d despite the loss of 1.6 million b/d of Libyan production. The Agency, however, maintains that the demand for oil has been running ahead of global production since the second half 2010 when the demand for oil surged.

The difference between supply and demand, which for a while amounted to 1.4 million b/d, has been coming out of global stocks which have been slowly falling in recent months. It is this imbalance between supply and demand that is likely the root of our high oil and gas prices. If demand growth continues at its present or even somewhat reduced pace, demand should be pushing up against 92 million b/d by the end of next year. Any further increase in demand would come from stockpiles at much higher prices and probably much economic disruption, notes the Energy Bulletin.

There are a number of countries that will be critical to what happens in the next two or three years. The most important of these is China where demand is now approaching 10 million b/d and is forecast to grow at about 6 percent this year and next after surging to 11 percent in 2010. India which is consuming about 3.5 million b/d continues to increase its demand at about 4 percent per annum. Demand from the Middle Eastern oil producers is also an interesting story. Although Saudi oil production is now pushing 10 million b/d, much of the increase this summer is being burned domestically to produce the power and water.