It was yet another volatile week with oil prices swinging wildly in reaction to the latest news. At week’s end oil settled at $46.28. Bad economic news, the ups and downs of the Detroit bailout, the massive Obama stimulus proposal, Saudi confirmation that it is producing at quota, and prospects for another OPEC production cut all contributed to the swings.

The IEA released a new estimate that worldwide demand for 2008 will decline by 0.2 million b/d to 85.8 million b/d, the first drop in 25 years. Much of the decrease in demand comes from the US where the EIA now estimates that US consumption for this year will be down by 1.2 million b/d or nearly 6 percent. US demand for gasoline in 2008 dropped 3.4 percent, for distillates 5.7 percent and for jet fuel 6.3 percent.

For 2009 the IEA, while revising its forecast down by 350,000 b/d, still forecasts that consumption will increase again to 86.3 million barrels. The Agency notes, however, that this increase could disappear if the economic slump deepens.

Not all analysts are so optimistic about the demand for oil 2009 as the IEA. The World Bank issued a very pessimistic report forecasting that global demand for oil will collapse next year as the commodities boom has come to an end. Even more pessimistic is oil market analyst Philip Verleger, who believes that oil demand is dropping much faster than is being reported and may now be in the vicinity of 82 million b/d or a 5 million b/d drop over last December. If these numbers are anywhere near true, it implies that OPEC will need to cut production on the order of 6 or 7 million b/d to bring the markets into balance.

The world’s investment banks continue to issue pessimistic forecasts for prices and the economy. Goldman’s foresees oil at $30 a barrel early next year. Deutsche Bank forecasts global GDP growth to be zero next year and forecasts that oil will average $47.

One thought on “Prices and Production”

  1. I find these summaries of oil supply, demand and price interesting and informative. But I think it confuses the discussion to use the terms “optimistic” and “pessimistic” in this context, as in “Not all analysts are so optimistic about the demand for oil 2009 as the IEA.”

    Except for people in the business of selling oil, it’s not good news when demand for oil goes up. It’s good news for many people when employment goes up, for example, and employment may correlate with economic activity, which in turn may correlate with oil demand. But the raw fact that demand for oil goes up, by itself, is not cause for celebration. It just means that we have less time to develop energy alternatives, implement conservation strategies, and adjust to global climate change.

Comments are closed.