Dealing with runaway oil prices

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World oil stocks, depending on the country and using periodic data from the IEA, EIA and oil analysts, in fact remain well below the average figures for the 2000-2003 period. Combined with recent - extreme - figures from the IEA for world oil production (well over 82 mbd), the overall reading is that world oil markets will remain tightly supplied with generally uptrending prices, right through the period to 2010.

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The base for this "surprising" growth in world oil demand, and reason why demand is growing faster than in the 1990s, is unstoppable growth of all forms of commercial energy demand by very fast-growing economies, including China, India, Brazil, Pakistan, Iran and Turkey. In addition, the type and nature of economic growth at the world level, also including the older, slower-growth OECD economies, has become more oil-intensive. This is reflected in the US (taking about 26% of world oil output) by consistent and large oil demand growth coming out of the 2001-02 recession in what has essentially been a "jobless recovery".

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Another factor tending to drag oil prices higher is strong growth of natural gas demand in several world regions, while supply flattens and then shrinks. For the two largest gas consumer regions, the US and Europe, the fast emerging picture is one of serious shortfalls in regional and national gas supplies becoming "structural" pricing factors. Gas prices in the US will certainly never return to those in the "cheap oil interval" of 1986-99, when daily traded prices averaged around $2/million British thermal units (MMBTU), and oil prices held at around $18-30/barrel. The emerging gas price paradigm for US consumers is now in the $7-10/MMBTU range, equivalent in energy economic terms to oil at around $38-55/barrel.

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Going forward, three "new paradigms" for annual average per capita demand can be posited, as shown in the table below. All of these paradigms lead only to one conclusion: sharply higher oil prices. In addition, these potential new trend rates of per capita demand and world demand growth on a three-year base are themselves driven by a world economic context of faster economic growth arising in part from higher energy and real resource prices. Any remaining tendency for "loss of market share" by OPEC members can only disappear with the type of vintage growth in world oil demand that is now under way. It is also noted that the per capita average demand figures used (4.75, 5 and 5.25 barrels/capita/year) are in no way "extraordinary" numbers. In 1980, with oil prices briefly attaining $100/barrel in 2003 dollars, and a year-round peak value for a basket of lighter crudes around $80/bbl, world per capita consumption averaged about 5.3 barrels.

Asia Times