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Page added on May 10, 2011
IEA: Demand, not speculation, cited for rising oil prices
High oil prices are here to stay, and they’re caused by surging demand and limited new supply, not Wall Street speculators.
That’s the message from Fatih Birol, chief economist at the International Energy Agency.
“Speculators are only responding to what is going on in the markets,” Birol said. “We don’t see enough oil in the markets. The major driver is supply and demand.”
Birol said growth in worldwide oil demand is outstripping growth in new supplies by 1 million barrels a day per year.
Much of that new demand is coming from China, which is adding 800,000 vehicles to its roads each year, he said, and is responsible for fully half of the world’s demand growth. Birol noted the growth in China’s oil consumption is equal to all of the new output expected from Iraq over the next few years.
Plus, countries that export oil are not doing enough to invest in new production, and countries that use a lot of oil are not doing enough to cut back.
This isn’t good news for American drivers, currently paying an average of nearly $4 a gallon at the pump.
“We have to learn to live with these higher prices,” said Birol, who declined to say exactly how high oil will go. “They are here for a long time.”
The International Energy Agency represents oil-consuming countries such as the United States, European nations and Japan. It was formed following the Arab oil embargo in the early 1970s, and it is responsible for shuffling strategic oil reserves among developed nations during a time of crisis. It also conducts extensive research on world oil markets.
Some argue that the world has plenty of oil, but that it is trapped in shale rock, tar sands or other types of formations.
Birol said challenges to extracting that oil include cost and environmental impact.
“There’s a difference between having those reserves in the ground and having them at the gas pump,” he said.
Birol’s bleak view is not shared by everyone. Other analysts say plenty of new production from places such as Iraq and off the coast of Brazil should combine with sluggish worldwide economic growth to create an oil glut for at least the next few years. They place most of the blame for high prices on Wall Street, not soaring demand or price gouging from companies such as Exxon Mobil, BP, Chevron and Royal Dutch Shell.
Birol said U.S. politicians can do little in the short term to lower oil and gas prices.
In the long term, he said, the U.S. should focus on increasing its own domestic oil production and limiting consumption through higher fuel-efficiency standards and better incentives for electric cars.
“Oil will be more and more expensive unless countries like the U.S. and China use less,” he said.
4 Comments on "IEA: Demand, not speculation, cited for rising oil prices"
DC on Tue, 10th May 2011 8:17 am
Not that the IEA is a bastion of accurate and forward-thinking energy-analysts, but at least, in this instance, they have said something useful. Not that speculators dont exist or exert influence, of course they can and do, but Pres. Obombers recent attempt to pin all the blame on greedy unprincipled speculators was little more than a shop-worn attempt to deflect peoples attention from the real issues, of PO and that our ability to find new, cheap easy energy is or has comeing to an end.
Speculators are an easy target, a faceless mass of presumabley pudgy middled-aged white guys that ruining everything. Kind of like blameing ALL crime on immigrants or blacks, some truth in it, but its really just a classic case of scape-goating and mis-direction. Its easier to lead a witch-hunt for speculators(especially when you know full well in advance, nothing or noone will be found, much less punished), than to talk about the real problem….
Harquebus on Tue, 10th May 2011 11:30 am
DC, I agree.
Kenz300 on Wed, 11th May 2011 8:22 am
Quote — “Birol said growth in worldwide oil demand is outstripping growth in new supplies by 1 million barrels a day per year. Much of that new demand is coming from China, which is adding 800,000 vehicles to its roads each year”
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How much longer will the growth continue to expand with rising prices and limited increases in supply? Looks like we are going blindly into a future that will hit a wall.
Alex White on Wed, 11th May 2011 10:48 pm
BS – the manifest increase in demand is less than 2% globally with increases here offset by decreases there.
The manifest decrease in supply is non-existent.
Distorted notions of acceptable trade play into buying something that changes hands several times at increasing prices between parties that will never take delivery of the commodities, not have any presence in those markets except as investors.
The issue is based on much deepere principles, but the demosntrable point is that demand – at BEST is up ~10% supply is down at BEST 5%, yet the pricing is up 300%.
Without this gross speculation, the fluctuation in current markets would be from 40-70$ a barrel.
Speculation also discounts increasing usage, and tendency toward, alternate energy as well as limiting usage. It IS happening culturally and politically, despite the greedy sense of entitlement of investors.