Who still thinks oil prices are driven by speculation?

Who still thinks oil prices are driven by speculation?

Not Sarkozy

my translation

“Demand for oil is stronger and stronger and supply is increasing very little, if at all.” “One must have the courage to state that oil price increases will continue”

Not Gordon Brown:

The cause of rising prices is clear: growing demand and too little supply to meet it both now and – perhaps of even greater significance – in the future. Higher demand is one of the major results of the scope, speed and scale of globalisation as Asian economies, as well as Opec countries themselves, demand more oil. (…)

It is the market’s belief that ever-growing demand will continue to outstrip supply that has pushed up the oil price. And we are becoming increasingly aware of the technical, financial and political barriers to the production of more oil.

And not the Wall Street Journal:

Oil Exporters Are Unable To Keep Up With Demand
Domestic Needs,  Sluggish Investment Crimp Shipments

The world’s top oil producers are proving unable to put more barrels on thirsty world markets despite sky-high prices, a shift that defies traditional market logic and looks set to continue.

Fresh data from the U.S. Department of Energy show the amount of petroleum products shipped by the world’s top oil exporters fell 2.5% last year, despite a 57% increase in prices, a trend that appears to be holding true this year as well.

This is a trend that should not surprise my regulat readers, as I’ve been pounding on it relentlessly (as usual – you read it on the blogs several months before it made the big papers), but it’s good to finally see it written in a “serious” publication:

There are several reasons behind the net-export decline. Soaring profits from high-price crude have fueled a boom in oil demand in Saudi Arabia and across the Middle East, leaving less oil for export. At the same time, aging fields and sluggish investments have caused exports to drop significantly in Mexico, Norway and, most recently, Russia. The Organization of Petroleum Exporting Countries also cut production early last year and didn’t move to boost supplies again until last fall.

In all, according to the Energy Department figures, net exports by the world’s top 15 suppliers, which account for 45% of all production, fell by nearly a million barrels to 38.7 million barrels a day last year.

While the recent spate of “why is oil at $120+” articles has duly been noting China’s and India’s strong demand growth, the above finally acknowledges the more worrying trend that I’ve been noting, with others: the massively increasing demand within oil producing countries themselves, which are booming thanks to record oil income, are subsidizing fuel (so demand is not limited in any way), and are happy to tap from their own plentiful resources to satisfy such domestic demand – with the predictable result that volumes left for export (to us or China) – ie put into the open market, the very volumes that set the world price, when confronted to our demand for imports – are declining.

For all the attention paid to China’s increasing energy thirst, rising energy demand in the Middle East may pose the greater challenge. Last year, the region’s six largest petroleum exporters — Saudi Arabia, United Arab Emirates, Iran, Kuwait, Iraq and Qatar — curbed their output by 544,000 barrels a day. At the same time, their domestic demand increased by 318,000 barrels a day, leading to a loss in net exports of 862,000 barrels a day, according to the U.S. Energy Information Administration.

Now that it’s in the WSJ, will people take what I’ve been writing seriously?

There’s less oil available for us; given that nobody will willingly reduce their use (“I cannot do without it”, “I need it to go to work” etc), prices will have to go high enough to force some to drop out completely, by switching to less satisfactory solutions like taking the bus, carpooling or walking, whichever is available. The hard fact is that demand has to go down, to provide the physical balance that will happen one way of another.

“The sense in the market is that peak oil is here and that things will only get worse,” says Mr. Robinson. “But the verdict is still out on that.”

But, as we ‘know’, peak oil is yet another corporate/OPEC conspiracy.

And, given that Both Sarkozy and Brown are still in full denial mode, proposing either to cut taxes on fuel (Sarkozy), or to ask OPEC sternly to increase production, no lessons are forthcoming from Europe on this topic.