In recent days, 3 respected commentators on oil markets have raised concerns about the near and medium-term prospects for oil supplies:
• Goldman Sachs has raised their 2008 WTI price forecast to $95/bbl from $85/bbl. This is driven by their expectation that cost inflation, plus continuing technological and political uncertainty, will ‘increase the price required to motivate capacity investment’. They point out that there has recently been a ‘large rise in long-dated prices to the $80-85/bbl range’.
• CIBC have pointed out that ‘soaring rates of consumption’ in Russia, Mexico and the OPEC countries will reduce their exports by 3.5mb/day by 2010. This equates to 3% of world demand. High oil prices are stimulating rapid growth in car ownership in many of these countries, whilst subsidised gasoline prices make driving cheap.
• The International Energy Agency (IEA) said yesterday that ‘we are on the eve of a new world order’ in energy, where China and India ‘now drive global energy demand’. The IEA chief economist, Faith Birol, projects 35mb/day of new demand by 2015, but worried that only 25 mb/day is currently being planned. Equally, the IEA says major energy consumers, including the USA, are doing very little to restrain demand growth.
My reading of all this is that dialogue between oil producers and consumers is starting to break down. As I noted after the OPEC meeting, even the Saudis are questioning whether they should invest the billions of dollars needed to bring major new fields on stream.
The price and availability of oil is absolutely critical to the chemical industry. Growing uncertainty around these key issues is already leading to increased price volatility, which in turn will reduce margins and profitability.