Why oil prices are barreling up

In the past week, oil prices have regained about US$3 a barrel after hitting a low of $45. Apart from the perennial US weather factor, positive sentiment was reinforced by IEA (International Energy Agency) data revising previous forecasts for world oil demand growth in 2005 by 80,000 barrels per day, or 0.08 million barrels/day (mbd), to the suspiciously modest figure of 1.52 mbd.

This is hard to fathom because the IEA also raised its final estimate of world demand growth in 2004 to 2.68 mbd. In percentage terms, growth in 2004 was very close to 4%, the highest for over 25 years. This number conflicts with forward planning ideas and beliefs of the IEA and other energy players – especially the world’s 10 biggest oil corporations. None of these players plan for demand growth beyond 1.75% per year. Some, such as BP and ENI, still claim that the “normal” long-term growth is about 1.3% per year.

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