Wednesday, July 16, 2008

Oil Price Bubble?

Economists are notorious for making inaccurate predictions. Many failed to predict the boom and bust in tech stocks and later the housing market. A matter of debate at the moment, is the extent to which rising oil prices are due to speculation and the extent to which they are due to supply and demand?

A recent report from the Energy Information Agency, suggests that supply and demand factors are mostly to blame. The EIA reckons that there will only be a surplus production capacity of 1.2 million barrels (nearly all this surplus is held by Saudi Arabia). This represents an industry operating at 99% capacity. When you are working so close to full capacity, and unexpected rise in demand can easily push prices higher. It is also evidence that the price rise has a fundamental reason of supply and demand behind.

Oil prices Forecasts for 2009

Lower economic growth in the US, Europe and other OECD countries could push demand lower in the coming months. However, this fall in demand is being offset by higher than expected growth in Latin America and persistently growing demand from China and India. This reflects the changing nature of the global oil industry. Oil demand is no longer so dependent on US and European demand. Demand for oil could grow despite falling demand in the US.

Economics confirm oil price rises - at Business 24/7
Why is the Price of Oil Rising?

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