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Page added on December 29, 2009

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Insight: Prepare for lower oil prices

The outlook for the oil price remains mired in much confusion. Peak oil theorists see production in terminal decline. Others, who expect the oil price to revisit its 2008 highs, argue that rapid demand growth from emerging markets, most notably China, will underpin a long and aggressive rally in the price.

Some even argue that as the world runs out of oil we shall slip back into pre-industrial ways as energy is rationed and human behaviour has to change as a result

Market price signals, however, have an uncanny ability to change long term supply and demand dynamics. Indeed the high and rising price of oil from 2004/05 onwards, but most particularly in 2008, would appear to have delivered a very clear and identifiable supply response. Using conservative assumptions we expect that the future supply of oil will increase by approximately 9-10m barrels per day by 2017. That equates to a 10-12 per cent increase in global production capacity. Importantly it will more than absorb our estimated 5m bpd increase in Chinese demand, the biggest single driver of demand growth, over that time frame.

Financial Times



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