Oil shock looms as prices stay high

Tag : carbon oil

The agency, which analyses national and international energy supplytrends for countries including Canada, says market fundamentals arebehind the doubling of oil prices over the past 12 months.

"OPEC [the Organization of the Petroleum Exporting Countries]production is at record highs and non-OPEC producers are working atfull throttle, but stocks show no unusual build [of supply]," thereport said.

The agency suggested in a news release accompanying the report thatthe world may be going into "oil shock" for the third time inhistory -- "record oil prices in recent months have become a threatto the global economy and social welfare of millions of people."
Energy is the basis of economic development, and if it's tooexpensive over a prolonged period of time, it can triggerinflation, economic stagnation and unemployment.
Oil shocks in the early 1970s and 1980s had precisely those effectson the global economy.
Consumers are already protesting "and, perhaps more importantly,"changing their behaviour, the IEA said.

In the United States, for example, the credit crunch and gasolineprices are already curtailing production of SUVs and light trucks,as motorists opt for smaller and more fuel-efficient cars.

Nonetheless, the IEA expects competition for oil will continue toincrease, with Asia, the Middle East and Latin America accountingfor more than 90 per cent of demand growth by 2013.

In spite of ongoing development of Alberta's oilsands, oilproduction by countries outside of OPEC is projected to declineover the next five years -- and new production projects are notexpected to be as robust or long-lived as the previous generationof oilfields.
Those new projects won't push prices down -- the cost to developnew oilfields has doubled in the past couple of years, and it'ssimilarly costly to develop new refineries, says the report.

OPEC is expected to add new production in the next two years, butspare capacity -- the amount of surplus oil in storage -- is stillexpected to remain "comparatively tight," below five per cent, and"is likely to dwindle to minimal levels by 2013."
Speculation by commodity traders is dismissed as the main reasonoil prices are up.
"Fundamentals are setting the level of oil prices. . . . Often itis a case of political expediency to find a scapegoat for higherprices rather than undertake serious analysis or perhaps confrontdifficult decisions," the report says.

"History has generally shown that speculative bubbles occur whenspeculators cause or facilitate speculative physical stockbuilding-- look at past bubbles in tulip bulbs, silver or even housing. Acheck on oil stocks does not indicate this is happening."