High oil prices reduce demand, increase supply

Oil demand Mar12.pngNew research by the Centre for Global Energy Studies (CGES) suggests that “The price of oil has to come down because supply prospects are so positive. The rate of demand isn’t going to grow as in the past as we use resources more efficiently.”

The chart, from the latest ‘CGES Global Oil Insight: Weekly Outlook’, shows how the price of oil has impacted end-users since 2000:

• GDP per capita (red line) has doubled in nominal terms
• Oil costs per capita (blue) have trebled

As CGES note, this is “leaving consumers as a group with much less of their income to spend on other items and thus delaying full economic recovery.”

At the same time, Bloomberg report:

• Morgan Stanley estimate offshore drilling in 2012 may unlock 25bn barrels of oil – 4 times Norway’s remaining reserves
• Repsol’s new field in Argentina may hold 23bn barrels

In addition, as the blog noted recently, shale oil and gas drilling is taking the USA towards energy independence. Whilst China is also stepping up shale gas exploration, as it seeks to reduce energy imports.

Already futures markets are alert to the changes underway. Oil prices for 2015 are $25/bbl lower. But in the meantime, today’s high prices will continue to destroy demand in chemical and other markets.

About Paul Hodges

Paul Hodges is Chairman of International eChem, trusted commercial advisers to the global chemical industry. The aim of this blog is to share ideas about the influences that may shape the chemical industry over the next 12 – 18 months. It will try to look behind today’s headlines, to understand what may happen next in important issues such oil prices, economic growth and the environment. We may also have some fun, investigating a few of the more offbeat events that take place from time to time. Please do join me and share your thoughts. Between us, we will hopefully develop useful insights into the key factors that will drive the industry's future performance.

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