Supply factors in the 2005 oil price surge

World oil production increased 4.2% during 2004, leading many analysts to conclude that demand increases, not supply disruptions, were the story behind last year’s rise in oil prices. As data for 2005 become available, I’m forced to conclude that the reason that oil prices have continued to surge above their values from 2004 is not further increases in demand, but rather concerns about the ability of supply to increase significantly above the 2004 levels.

A demand-led oil price increase should be partly self-correcting, owing to the difference between the short-run and long-run demand for oil schedules. As the stock of equipment and vehicles adjusts to the new higher prices, that should cause the short-run demand schedule to shift partially back to the left, relieving some of the pressure on prices.

Energy Information Administration

Petroleum consumption from the OECD countries, which accounted for 60% of world petroleum use in 2004, fell slightly in the first quarter of 2005 compared with the fourth quarter of 2004. By comparison, OECD consumption had increased between the fourth and first quarters of each of the preceding four years, on average by 0.4 mbd. OECD petroleum consumption in April fell an additional 1.9 mbd relative to March, which puts the April 2005 consumption 0.1 mbd below the value of April 2004.

The Energy Information Administration also reported that global oil consumption fell 0.1 mbd in the first quarter of 2005 compared with the fourth quarter of 2004. This breaks down as a 0.3 mbd increase from China, a 0.3 mbd decrease in the United States, and a 0.1 mbd decline from the rest of the world. This global consumption decline coincided with a 0.1 mbd increase in global production between 2004:IV and 2005:I. Taken at face value, the difference between global production and global consumption growth would imply either a build-up of inventories or less inventory drawdown during the first quarter of this year, though it could also reflect inaccuracies in either or both of the underlying statistics.

There’s also this interesting news from the EIA’s August 24 This Week in Petroleum.

Over the most recent 4-week period, crude oil inputs to refineries (refinery runs) are down over 300,000 barrels per day from the same period a year ago. This, while crude oil imports over the same 4-week period are up over 300,000 barrels per day from year-ago levels! It appears that refiners are importing crude oil, but putting it in inventories rather than running it through their refineries at rates that might be expected.

The purchase of oil in order to add it to inventory is of course another factor that props up current oil demand, and, insofar as it is being done in anticipation of earning a profit, one could claim that speculation has been an important factor driving oil prices up this year. Speculation at a time like this of course has the effect of driving high oil prices even higher, which leads many people to think of speculation as a destabilizing force. It would indeed be destabilizing if those inventories later get sold off when the price of oil is lower, because the additional sales out of inventories when prices are low would drive prices even lower. However, this is hardly a prescription for making a profit, for, if it works out as just described, the speculators bought when the price was high and sold when the price was low, meaning they lost money on every barrel they sold.

BP Thunder Horse in mid July

Insofar as speculation is a factor in the current market, those adding the oil to inventory must hope that, although they are buying the oil at a high price, they will be able to sell it at an even higher price. The oil futures market has consistently reflected the belief this summer that over the near term, oil prices would head even higher. In part this belief could derive from concerns about whether productive capacity will be sufficient to meet the usual surge in fourth-quarter world petroleum usage. More fundamentally, given the present lack of excess capacity, the market is unusually vulnerable to disruption from political events, or, in what may be a very dramatic development when oil markets open tomorrow, hurricanes in the Gulf of Mexico. That gives oil storage a strong upside potential with limited downside risk.

Speculators in this market were hoping to buy high and sell even higher. Although their purchases drove up the price of oil in the first half of 2005, if that stored oil is then sold in the second half of 2005 when it’s needed even more, the price spikes associated with events of the type just mentioned will be lessened. Profit-maximizing speculation is stabilizing and helps society cope with supply problems. Profit-losing speculation is destabilizing and makes the problems worse. Because I have faith that speculators are trying to make money rather than lose money, I see such speculation as overall a very constructive and important element of how we manage these problems. Speculation in the first half of 2005 was a useful signal that our problems were more serious than many of us had realized, and helped initiate the necessary responses of both supply and demand to those problems.

But why couldn’t we count on additional production capacity rather than inventories to help cope with such events? One school of thought points to the $2 billion decline in global spending on oil exploration that followed the oil price collapse of 1997, along with inadequate investment in refineries needed to process the heavy, sour crude currently available. A second school of thought argues that it is not physically possible to increase production further, not in 2005, nor in 2010.

The fact that oil futures show a declining price path once one gets beyond a year into the future suggests that the market is betting on the first interpretation rather than the second. However, as my readers are ever faithful in calling to my attention, the market could be wrong.


34 thoughts on “Supply factors in the 2005 oil price surge

  1. T.R. Elliott

    Excellent post. This nicely expresses my thinking on this issue for the past year or so. Speculation is driving up oil prices, but speculation based upon just the issues you’ve raised. With all the high quality yet conflicting analysis that is available (e.g. ODEC, CERA, Simmons, Pickens?), combined with the lack of investment, I think we can only wait and see.

  2. Avo

    Yes, I agree, this was an excellent post. I learned something about the role of speculation that I hadn’t previously appreciated. Thank you, JDH.

  3. Davidw

    I hate to introduce future traders into this PO debate again, but this post today made me wonder what information do they use to set their trades (in terms of the various sources quoted above by JDH):
    “It seems to be a very crazy market,” said Tetsu Emori, chief commodities strategist at Mitsui Bussan Futures in Tokyo. “People worry about gasoline and crude oil supply.” ….
    “Seventy dollars is completely far away from the fundamentals,” he told AFP. “It’s quite difficult to sustain.”
    If they cant make sense of what is going on, how do we ‘mug punters’? (Aussie term for people in the street.)

  4. Duncan Brown

    Futures traders are skittish folk. I’ve always wondered why they react so violently to short term events like storms in the Gulf. Decades of experience show us that even a massive “storm of the century” like Andrew (and Camile and Katrina or whatever) have cut production for a day or two from one or two of the hundreds of offshore pipelines out there, and then production gets right back to the long-term trend.

  5. Jonathan

    futures traders react on emotion (hopefully to that of the market while being in control of their own emotions, which is a very important factor in the real world of futures trading) and self presrvation. they use a great deal of leverage and cannot afford to be wrong very long. therefore those of us who survive, have learned to “take losses quickly and let profits run.”
    As to what information we use: in addition to staying informed, we look at price charts, which do tell us what the consensus is thinking, short term. Traders react to price points that are “prominent,” and any trader who fails at least to take this into account can get in hot water very quickly.

  6. Bubba

    First, kudos to the post. It shines a light on an issue that most economists seem to be avoiding.
    Second, relative to the comment: “It seems to be a very crazy market,” said Tetsu Emori, chief commodities strategist at Mitsui Bussan Futures in Tokyo. “People worry about gasoline and crude oil supply.” ….
    “Seventy dollars is completely far away from the fundamentals,” he told AFP. “It’s quite difficult to sustain.”
    I have been reading these comments ever since oil went past $35/bbl. I am completely convinced that the trading community has, on average, no idea what they mean by “fundamentals”.
    The fundamentals of the supply side of the equation relate to 1)lack of opportunities to invest 2) extremely long lead times and payout times for most projects these days (10+ years from discovery to peak production is not uncommon) 3) a fear of being burned by a drop in oil prices similar to ’86 and ’98 consequently resulting in very conservative ($25/bbl) future pricing forecasts 4) a very tight market for supplies, labor, and rigs causing near term cost for services to skyrocket 5) huge (2X) cost overruns on most major E&P projects worldwide (see Shell’s statement on Sakhalin II)
    It is much easier to take supply out of the market (hurricanes, war, political unrest) than to put excess supply back in.
    As long as oil costs only $0.10/cup I don’t think we are even close to the “fundamental” price that reflects its true value to the world and this economy.

  7. Duncan Brown

    Thanks for the insight, Jonathan. How long have you been trading crude futures? What other commodities do you work with?
    So you concentrate on price movements–over what period?
    What kind of supply and demand information do you use?
    Thanks again.

  8. Duncan Brown

    Yo, Bubba… It seems to me that you’re confusing the physical quantity (a barrel of crude oil) with its productive capacity (so many kilowatt-hours or X hundreds of miles driven). There are many ways to provide the latter, beyond burnig the former. At today’s futures prices it becomes possible to re-open the Carter Administration oil shale mines in the Rockies, and the Canadian tar sands, or we can gasify coal and reinject the resulting CO2. All of the necessary technologies were developed starting in the 1970s and 80s (during the last oil hysteria).
    Human ingenuity always finds a way.

  9. Bubba

    It seems to me that you are confusing your optimism about human ingenuity with the reality of providing energy to the world. If you are interstest about Oil Shale, Tar Sand, and Deep Water production potential please feel free to read my posts below.

  10. T.R. Elliott

    I’m with Bubba here. Phrases like “Human ingenuity always finds a way” don’t really mean that much to me. A more accurate phrase is “human ingenuity somtimes find a way.” Recorded history is only 5000 years old. Human society perhaps 10,000 years old. I’ll go with physics and entropy to help me understand this whole energy issue. Economics does tell me something, but sometimes economics tells me that demand destruction is required. And there are some rather nasty forms of demand destruction that have taken place in the past.
    This is the point that irritates me. Some people use economics to prove that “good” is always the outcome of economic processes, including what may be the process of energy depletion. I call it the “What, me worry” school of thinking. But economics doesn’t say that at all. That positive interpretation has blinders on, looking at history and facts selectively.

  11. T.R. Elliott

    Another modification of the phrase: “human inginuity always find a way for a portion of humanity up to but not necessarily including all of humanity.”
    Both of these variations I’ve provided are more accurate, in my mind. To me, this oil issue is all about blind alleys. I’m not convinced that free markets can necessarily avoid blind alleys. Another way to say it: capital is often overallocated due to exuberance, herd mentality, etc. If anything, that’s the time when the economic sciences, combined with the physical sciences, can combined to determine whether policies might help avoid or minimize the misalocated investment. Whether this is possible, whether the political process is capable of it, is a different question. But still an issue that should be considered.

  12. Duncan Brown

    Prof – related to your Chinese oil post:
    Asian Economies Starting to Feel Effect of Oil Prices,0,1375146.story?coll=la-home-business
    Sorry TR,
    That “Human ingenuity always finds a way.” did sound a little smug. It’s just that I was around in the 70s and 80s, and watched the smart money bet on resource depletion without much reflection. I’m sure that it’s different this time. If you want to be a succcessful investor, you should always question the accepted wisdom. It’s getteing to be a matter of ideoleogy (with it’s own slogans (“PO” etc.). Back in the 1970s we talked how “precious fossil fuels” were getting to valuable to burn, and would have to be reserved for chemical feedstocks and the like.
    Back then (as Bubba Hotep notes on his impressive site, the government threw a lot of money at energy technology. I have the feeling that at least some of it has stuck (in the sense of giving us broader alternatives to the way we do things).
    It would be so easy to improve effieicny! Ther’s so much low-hanging fruit (my neighbor drives to his job as supermarket checker in a Ford F-150 pickup. Millions of people like that will soon by junking their big cars and buying little Japanese ones. A tipping point is at hand. That’s what we all did –practically overnight–in the 70s.

  13. M1EK

    “Millions of people like that will soon by junking their big cars and buying little Japanese ones.”
    Millions of people CAN’T all do that at the same time. Most people can’t afford to throw away a working vehicle, and there’s no demand in the used market for SUVs.

  14. T.R. Elliott

    Duncan: I agree with you. A lot of people made a bad call in the 70s. I think the issues brought up in the 70s were important. I think malthusianism must always be considered. But the folks in the 70s didn’t have their facts together. And we still don’t. But additional evidence, and better science–which has improved significantly since the 70s–does tell us that resource depletion, in particular energy, is a problem in general, may be catastrophic in the next 100 years, and may immediately put downward pressure on economic growth.

  15. Duncan Brown

    I swear to God, we did it back then (Standing in gas lines got peoples attention.) That’s why you don’t hardly see 60s-era American cars (which tended to have V-8 engines and lots of chrome) on the road any more (except in Havana). That and the fact that they were pieces of rolling junk, that didn’t last that long. Once again, the so-called Big Three are going to be caught napping, trying to sell SUVs. Detroit insisted for years that hybrids were not practical, and that the Japanese manufacturers who offered them were lying about their ability to sell them and make profits. Now all of the Detroit dinosaurs are getting ready to offer hybrid models (presumaby licensed from Toyota)–in SUV models most prominently!

  16. T.R. Elliott

    Duncan: Again I agree with you. There are a lot of doom and gloomers surrounding what may be a peak oil or even a peak energy issue. My response: Over the next 100 years, 6 billion people will die. It’s a fact. Get used to it. We’re all mortal.
    In the mean time, there’s a buck to be made and hopefully some progress or at least minimal-regress that needs to happen. If energy is peaking, the American public, and the world, needs a good shock to open their minds. Then we’ll see what kinds of efficiencies the system–and by that I do mean the market with some R&D from the Govt–can bring.
    People do not need to go 0-60 in 6 seconds. It’s absolutely insane. If you can afford to, fine. But that may not be affordable any longer. I used to drive a Volvo 240. People joked that once you got up to freeway speeds, you didn’t want to slow down (for fear of never getting back up to speed). I now drive a Honda Insight. I joke that I have to make a reservation to get on the freeway (to ensure the necessary space to get up to speed). This is a joke of course. The acceleration is fine. It has three cylinders. I think I’d do fine with two. If it was diesel, it would probably easily get 80 mpg. Right now, I seem to get 50 (average). Still not bad.

  17. TI

    EIA data tells that the OECD oil consumption was higher in the first quarter of 2005 compared to the first quarter of 2004. There are quite strong seasonal variations, so it is not possible yet to see if the OECD demand is going flat or decreasing for the year.
    But we can also see that prices do have some effect on the demand. The demand curve is not so inflexible after all.
    If supply has really begun to flatten out it coincides nicely with the flattening Russian production. It seems more and more likely that it will be not Saudi-Arabia but Russia that triggers the peaking. The Russian overall production curve points to a possibly sharp decline in near future. We will see how it goes in a few months.

  18. RayJ

    “Fundamentals” is a convenient way of expressing a conservative set of assumptions based on industry consensus on the shape of the supply and demand curves. Consider the supply side for the moment. The current consensus is that supply could be added at a cost under about $25/b and this is used as the hurdle rate for determining whether projects should go ahead. Of course this assumption could be wrong and if $25 is too low, many profitable projects will not be funded; if it is too high seemingly profitable projects will lose money.
    To address JDH’s point about whether lack of new supply is due to lack of investment or the advent of PO, I believe it is a combination of the two. As PO approaches, fundamental assumptions change much faster than the industry would expect. So, for example, the hurdle rate for projects may have shifted to $40 instead of $25. At some point, say when spot prices are $80-$100, a lot of projects profitable between $25 and $40 will proceed and, when they come on line, prices will collapse back to $40. This price volatility is why it is dangerous to play in the oil futures markets.

  19. T.R. Elliott

    Ray: I think the one shortcoming of your analysis is that you aren’t taking into account supply and demand. I don’t know what kind of supply the $40/barrel projects can produce. How many millions of barrels a day can we produce at the $40 price point (in terms of making the project profitable?). If the volume isn’t high enough, the price will remain above $40 in order to suppress demand.
    Production costs and the market price of oil determine whether a particular project will be pursued. That’s a given. And I’m led to believe that oil companies have been using a market price of $25 in order to give the go ahead to projects. So let’s say they shift that to $40. What happens then? A gusher? Not necessarily. When those $40 projects come online, depletion may have made $80 projects viable, and the volume from the $40 projects isn’t enough to meet demand at $40.

  20. TI

    We know that the discovery rate has really decreased as a trend since ’70s. New fields are definitively smaller than before. So we can’t really say that lacking investment is the cause for tight supply. Nobody wants to investing in dry drilling. This is one of the Peak Oil basic facts.
    We can also see that the new production is now already coming more and more from new sources, tar sands, extra heavy oil and deepwater. This is low yield, expensive production. Problem there is that increasing production from these sources is not only expensive but slow. The rising prices have really brought in new supply but not quite enough.
    The extraordinary growth of last year was possible only with the help of Russian conventional oil (and some from OPEC). Now we see how long this is possible.

  21. Rick

    For the first time ever I agree with ME1K! When Duncan wrote about the expected rush of people trading out of SUVs for economy cars he forgets about two very basic realities. 1) Many people still have need for a large vehicle. 2) After considering the financial impact of the trade itself, many “would be” SUV/Truck traders realize they can still buy many years worth of gasoline (even at considerably higher prices) for the relative loss when trading their current vehicle. (not to mention the loss of function)

  22. Scott

    The last time OPEC restricted supply and tripled crude oil prices was between 1978 and 1981. In 1978 the US put 15.07 million bpd though its refineries. By 1983 the amount had dropped to 11.95 mbpd a 20% reduction. It then took until 1998 for usage to top 15 mbpd again.
    This time the shock wont be as great since the price increase isnt as large nor is oil as big a part of our economy as it was back then. However, we should see some decrease in demand. It may take a while (a few years) just as it did the last time, but if its really that big a deal, well see it happen.

  23. Bubba

    All you guys who are talking about the ’70′s and ’80′s I want you to know that I was there too. However, when you talk about all the money lost because of betting on high oil prices, I am reminded of the saying that “Wall Street is littered with the corpses of those who were right too early”.
    Also for all of you who have since chimed in, I want to reiterate my points from above about the practical “fundamentals” of oil supply so you will understand how difficult and how delayed a supply response, even if physically possible, will be, assuming sustained high prices.
    The fundamentals of the supply side of the equation are governed, rightly or wrongly, by the following conditions:
    1)a perceived lack by most oil companies of opportunities to invest (hence most companies, lead by ExxonMobil, spend their cash doing share buy backs.)
    2) extremely long lead times and payout times for most projects these days (10+ years from discovery to peak production is not uncommon)
    3) a fear of being burned by a drop in oil prices similar to ’86 and ’98 consequently resulting in very conservative ($25/bbl) future pricing forecasts. Oil companies are very conservative. It is unlikely that even after a year of >$50/bbl that they will change there forward pricing forecasts by more than $5/bbl.
    4) a very tight market for supplies, labor, and rigs causing near term cost for services to skyrocket. (Deepwater rigs have gone from $150,000 per day to over $400,000 per day in the past year).
    5) huge (2X) cost overruns on most major E&P projects worldwide (see Shell’s statement on Sakhalin II)
    In any other industry (except maybe healthcare) if the price that a company could charge for its product doubled (computers, cars, cable TV) without affecting the demand for that product, supply would increase, because companies would ramp up production and alternative producers would come in and try to sell for less. Conversely, if the cost of a product provided by most other industries doubled, there would almost certainly be a demand response and people would buy less of it. In the past 1.5 years oil has doubled but demand has actually increased. Clearly oil is not a “normal” product.

  24. Anonymous

    You are right. I deliberately did not consider demand, technology, duration and a host of other variables to keep the discussion simple. The example I gave assumes that adequate supplies are available at $40. If we assume, as you imply, that supplies are inadequate at $40 then, all other things being equal, prices will remain high and PO/depletion would have shifted the hurdle rate to a higher amount. Of course, at some price point enough demand destruction will occur to achieve some sort of equilibrium. The intent of my post was to illustrate how PO impacts the models people have in mind when they talk about “fundamentals”

  25. dryfly

    In some ways the term ‘futures trader’ is an oxymoron… they really trade in the here & now… what they know here and now… at the most they should be called ‘very-near-term-future traders’…
    On the DB-Bubba ‘ingenuity’ debate… they are both right & both wrong.
    I agree with DB that with ingenuity energy is NOT a problem… not even affordable energy.
    The problem is ‘when’ – in which case, in the time frame of ‘future contracts’ there are VERY FEW choices other than existing supply. In fact the reason sweet/light shots up so much is there really isn’t enough capacity to process much except sweet/light at the current demand levels. Otherwise the refineries choke on the sulfur & bottleneck at the cat crackers. Well except in China where they just pour the sulfur into the air.
    In the intermediate time – say a couple years – I am sure we will see more heavy /sour debottlenecking being completed & online (and the price spreads will narrow)… but that will take time.
    In the longer term you will see processes come on stream to exploit the tar sands & shale oil & coal and the like… existing products but in different & more difficult forms to process.
    In the longer, longer term viable REAL alternatives will become available… as long as the sun shines and is a heat engine… and people can still think & make stuff… there will be ways to tap into some of that.
    But I agree – this current price spike is every bit as much about supply shortages as growing demand. And it will get nothing but worse
    as time passes.

  26. dryfly

    On China…
    Energy costs over there are starting to have an impact on prices, not just supply & logistics.
    I had dinner last night with a fellow engineer who does a lot of work with China… very senior product engineer. He is going over there in late October again… with his boss VP Engineering for a large importer of consumer products…
    Reason they are going: price increases on petroleum based products (plastics & synthetic rubber components) they buy… they just got the price increases for ’06 contracts. He said this is the first ‘pass through’ they have ever had… prior to this the Chinese ate the cost increases… not this time.
    I know this is anecdotal but this guy has always been a bellwether on stuff like this… it will be interesting to see if the Chinese backdown in October or say ‘pound sand’ in Mandarin… In their business there are very few domestic or even NAFTA Zone suppliers left.

  27. Duncan Brown

    I’m the one talking about the 70s and 80s.
    You’ve apparently bought all of the assumptions of the oil and gas industry. “Exxon/Mobil says such and such”; “long lead times,” “cost over-runs” etc. etc. Why should I trust that company or any other oil company?
    These comapnies–and Exxon Mobil is the worst offender–live not by making normal business investments, but by sucking up to public officials and the general public for subsidies. Exxon/Mobil has those horrible public service ads about how they have spent a “billion dollars on independent climate research.” (In other words, they’ve paid people with exert credentials to deny that climate change is happening.)
    These people are the ones you trust?
    Let me repeat: “The fundamentals of oil supply” are not the important facts. What matters is the services that energy can provide. A BTu is basically a BTu (to a first approximation, anyway.)
    These services can come in many forms: electricity; synthetic gas orliquid fuels; or whatever. There is so much low-handing fruit in the form of energy efficiency that we can live off of that alone for a while. That’s what we did back in the 70s. The key datum is BTu of energy use per dollar of GDP. Next time I’ll give you the data on that.
    And TR–I’m still driving my Volvo 240 station wagon. I take it on thousand-mile round trips without worrying. It’s so reliable. The 25 mpg is not as efficient as my next car will be though.

  28. RoyYoung

    Oil is a “normal” product, just like most things in life, subject to the market forces of supply and demand. The paradox of rising demand and prices in the last year can easily be explained by an outward shift of the demand curve. In Econ text book this is usually describe as an increase in demand at any given price point. This is why some people describe this as demand induced price increase, as oppose to supply induced price increase we saw in the 70′s.
    “Abnormal” goods, characterized by an upward sloping demand curve, are usually found in so-call luxury goods where the higher price becomes part of the utility to the consumer. Think fancy basketball shoes and dimonds.
    I happen to work for one of the larger oil companies, and while conservative risk taking plays a role in investment vs. stock buyback, (after all most of their leaders enter the business in the 70′s and remember the boom and bust lesson well) there are other factors that people from outside the industry just don’t understand. Bear in mind XOM, BP and their like are spending like $10 billions a year on capital projects, so it is not like they don’t spend their cash. The biggest complaint I hear from management is actually the lack of (good) investment opportunities.
    This has little to do with the lack of exploration prospects, and everything to do with the geopolitics of oil. 80% of known reserves in the world are in the hands of nationalized oil companies, off limit to private sector companies. And even when they are allowed in, the terms of consession are structured such that the majors get all the downside, and very little upside. Mexico has ban foreign oil companies and gave state own Pemex a monopoly. VZ still allow foreign oil companies, but they are retroactively upping the tax rate on consessions. Russia had Yukos, enough said.
    This paints an ugly picture on the supply side even if you don’t buy into the Peak Oil stuff. Because all the national oil companies are basically run to increase the wealth of their corrupt leaders and to pump out cash to buy political support, they are universally poorly run, underinvesting, and corrupt. Because of the inefficient system and lack of money to reinvest, most of them have trouble keeping up production and are in danger of going into significant decline. Mexico may have already past its peak and is in decline, and Indonesia is now a net importer and may get kick off OPEC.
    People like to blame the majors for the price hikes, but the truth is we would be much better off if more of our oil is produced by the majors (and I will say that even if I don’t work for one of them).

  29. sun bin

    Oil price will peak after it cross the $70 mark, and US has full control on oil price now

    it is hard not to believe that oil price has already passed the “equilibrium point”….this is a metastable position and that it could collapse when the one-side bets are no longer sustainable

  30. muhandis

    IEA’s Klaus Rehaag’s presentation illustrates the magnitude of field depletion in relationship to ‘consumptive’ demand growth. Depletion way bigger than consumptive demand growth!!
    In this respect, addressing demand growth is even more of a challenge as there is increasing field depletion which must be made up first just to keep production from falling. The production treadmill speeds-up…
    (Apologies if I repeated a point as I haven’t time to read through this thread yet)

  31. financialwise

    Why to compare what was burned in march with what was burned in previous october? Oil demand is inherently seasonal, so you have to compare it year by year: This clearly shows a demand increase these last twelve months….Correction could come, but why not by a recession?

  32. JDH

    You’re right about the importance of seasonal factors, Financialwise. That’s why I made a note of the fact that although 4th-to-1st quarter this year was down, in each of the four previous years, 4th-to-1st quarter was up. You’re right it’s still not down on a 1st-to-1st quarter basis, though for OECD it is down on an April-to-April basis.
    Basically the reason I’m looking at the 4th-to-1st quarter comparison is I’m trying to recognize the trends in what’s going on at an early stage. Yes, when we get the full year’s 2005 data we’ll really know, and making a guess now about what it will show can be hazardous. But it looked to me like a significant enough development in the data for the first 4 months of 2005 alone that I wanted to share these numbers with my readers.

  33. nitish

    can u please please please Find out the trend in world oil prices over the last few months and why this trend exists. What is the forecast by oil industry experts for the next few months? How does this trend effect your country???
    pls find these things or lemme know sumthin about this and email me as soon as possilbe if u cant c my id it is
    pls pls pls ASAP……
    or else the world wud miss an upcoming economist…

  34. JDH

    Nitish, nobody knows for sure where oil prices are headed next. The best place to look for a “consensus” of what the experts think is the futures prices, which suggest that the market believes that oil prices are a little more likely to go up than down over the next few months. But nobody knows for sure.

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