MichaelCD - The Blog.

The thoughts of Michael Cadwallader. Coffee loving, history book reading, Cheshire man.

Wednesday, July 11, 2007

Oil Fundamentals - Update

The fundamentals of oil have returned to the news this week. The IEA has predicted a coming supply crunch:
Crude-oil supplies will be tighter in coming years, with a "supply crunch" after 2010 as OPEC's spare production capacity evaporates, the International Energy Agency predicted Monday.

Supplies will tighten because economic growth will drive up demand and offset significant increases in oil-refining capacity, the IEA said, according to media reports citing the agency's annual medium-term forecast.

The IEA, which monitors energy markets for the world's 26 most-advanced economies, doesn't forecast oil prices, but its conclusions imply consumers should expect continued upward pressure on energy costs, The Wall Street Journal reported in its online edition.

"Oil and gas price pressures look set to remain in the coming years," the IEA reported, according to the Journal. "Slower-than-expected (gross-domestic-product) growth may provide a breathing space, but it is abundantly clear that if the path of demand doesn't change on its own, it may well be driven to change by higher prices.".
Clearly, the problems here are more of a refinery nature than Peak Oil related. Nonetheless, they are related to the unbelievable explosion in demand of the last few years emanating from non-OECD countries, which has lead to the pressure on refinery capacity.

And when you add stagnating reserves, refinery problems and massive demand together it shows that we are headed one way: directly towards what Peter Terzakian calls an 'energy breakpoint'.