VIENNA : Limited spare capacity means that the ability of oil producers to meet the sharpest rise in demand since the 1970s is likely to be severely tested, according to experts attending an OPEC-sponsored seminar in Vienna.
Current estimates see global demand for oil over the period 2003-2004 increasing from 80 million barrels a day (bpd) to 84 million bpd, the biggest surge in more than 25 years.
China alone accounts for around a third of this four million bpd of additional demand, experts at last week’s seminar said.
For some these were grounds for disquiet, with signs that the trend marked the start of a new era for the petroleum industry.
OPEC (Organisation of Petroleum Exporting Countries) members have come under fire for failing to anticipate the present rise and are promising to step up production.
But experts believe the problem is not so much the quantity of oil currently on the market, seen as sufficient for present needs, as the reduced margin, or “safety cushion”, in production capacities in the event of a crisis involving one or more of the major producers.
The margin, most observers agree, has never been finer, with estimates ranging between 0.5 and 1.2 million bpd, only part of which is easily accessible. At the start of 2002 it was as high as seven million bpd.
Only Saudi Arabia, OPEC’s leading producer, is seen as having any margin for manoeuvre.
Last week, once again, the cartel promised to raise its spare capacity in the medium term.
But cartel promises, apart from Saudi Arabia, along with cartel estimates and forecasts, are notoriously unreliable and best handled with care, Adrian Lajous, head of the Oxford Institute for Energy Studies, told the seminar.
“Even if these estimates are taken at face value, it is clear that the international oil industry will be truly tested this winter” because of the seasonal increase in demand for heating products, he said.
And whether or not oil prices remain at their present high levels — around 45 dollars a barrel in New York — there is little likelihood of demand falling off, according to Claude Mandil, executive director of the International Energy Agency.
“Demand for oil is almost inelastic,” he said.
Oil professionals find the current supply-demand disparity, and the lack of any immediate prospect for change, disturbing.
“Is something more profound happening?” Norwegian Oil Minister Thorhild Widvey asked. Unable to answer her own question, she predicted that “we will continue to see relatively high prices in the future.”
Lee Raymond, head of the US oil giant ExxonMobil, responded more cautiously: “It remains to be seen whether this is a paradigm shift.”
For Lajous, however, “the international oil industry has begun a period of fundamental change. Signals of supply rigidity abound.”
It was up to producers now to “recognize these new circumstances and quickly come to terms with them,” he said.
“In characterising the oil market and defining their own strategies it is imperative that they make a swift transition from the logic of chronic oversupply to one of short- and possibly mid-term scarcity.
“Priorities will have to be reset. Investment in crude oil capacity expansion is now of vital concern,” he warned.
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