Lynch: Oil and gas industry will produce oil to meet consumer needs

By Michael Lynch

Entering 2010, the market will see fewer barrels coming on line. Erosion of existing supply will continue. OPEC will, no doubt, hold the line and the result will be a firmer market tone which will reduce but not eliminate volatility. Producers have now accepted that demand rates will not return to the 2005-08 levels. OECD inventories will hold steady or marginally decline. The only set of circumstances that could alter this forecast would be a second jolt or series of jolts to the financial system that would further reduce worldwide economic activity.
Progress is quite uncertain in the U.S. because of extreme debt levels but elsewhere economies are recovering their poise and will likely generate productivity at more or less the same rate as in 2009. Complete equilibrium in crude oil markets never happens. The balance is always tilted either toward demand or supply. Worries about “peak oil” are offset by the growing awareness that natural gas is inexpensive and virtually unlimited in supply. Markets adjust to new realities. Speculation is always based on what traders and investors think about fundamental forces. Since these can never be predicted with any precision, any attempts to dampen speculation will fail.

GLG