Oil prices set to jump again as industrial demand keeps rising
Crude oil supply will also be constrained by declining flow from OPEC nations as their older wells decline, with downstream products supply further held back by shortage of refining capacity. Russia, Venezuela and other large producers are restoring state control over previously privatised operations, while others have imposed tax increases that producers can easily pass on in prices with the market at its present strength. Though new discoveries are still being made, many of the world’s major fields have now passed peak production, and even Middle Eastern output is widely forecast to start declining soon.
Hopes of supplementing or substituting lots of oil with crops and other biofuel are downplayed by the IEA, which forecasts a contribution of no more than 2% of total fuel use even in 2012. But increased cultivation of crops for biofuel is already being blamed for raising the price of another commodity, wheat, an increase about to be felt in supermarket bread and pasta prices. The IEA goes as far as suggesting that a severe supply shortage could fuel a new burst of inflation and disrupt world growth after 2010. With the gas market heading for a similar tightening, the agency is keen to point out that fuel supply remains a sometimes unacknowledged weakness behind recent buoyant forecasts for global growth.
By Alan Shipman, for FinanceWeek