The International Energy Agency (IEA) announced in its recent Oil Market Report that world oil demand is expected to rise to 91 million barrels per day. Demand is growing rapidly in the emerging markets; which is outpacing sluggish supply growth. This is driving oil prices higher.
Rising oil prices are not good for the economic performance of the developed economies. The IEA sees similarities to the spring of 2008, just before the large jump in oil prices:
“Oil prices around $100/bbl are weighing down on an already-fragile macroeconomic and financial situation in the OECD, pressuring national budgets in the non-OECD and causing price inflation of other commodities, as well as political concerns about speculation. There is an uncanny resemblance to the first half of 2008.” “From the upstream implications of the Arab Spring to the macroeconomic consequences of the Eurozone crisis, energy markets are experiencing one of the most uncertain periods in decades.”
The chart of world oil supply shows that oil production is not keeping up. The chart clearly shows the reduction in supply from Libya. That production could take more than a year to be restored once the civil war in Libya ends. The oil market is very tight and appears that there is not enough oil to meet the demand at current prices. Higher prices will be necessary to destroy enough demand to put the market into balance.
It just amazes me that the United States still does not have a national energy policy. The administration seems to be pursuing its cap and trade policy to limit energy use by using the regulatory powers of the EPA. Starving the economy of energy is going to cause economic problems and will hurt job creation.
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