Tuesday, July 1, 2008

IEA predicts that oil market will remain tight

In a presentation to the World Petroleum Congress, Lawrence Eagles of the International Energy Agency (IEA) predicted that oil markets would remain tight over the next five years while also downplaying the role of speculators in the recent price rise.

If correct, this is bad economic news, with Eagles going so far as to suggest that the world may be experiencing a "third oil shock" and that the share of output going to oil expenditures may return to levels from the early 1980s.

The bright spots in the IEA analysis are that oil demand among developed countries has declined (and is likely to continue declining) even as their economic output has expanded and that capacity is expected to grow, albeit at a very slow pace after 2010. Overall demand, however, is likely to grow because of rapid growth in consumption among developing countries.