The world’s supply and demand of crude have reached record levels, accord to the International Energy Agency (IEA). The figures have hit 100 million barrels a day.
A new IEA report points out:
Both global oil demand and supply are now close to new, historically significant peaks at 100 mb/d, and neither show signs of ceasing to grow any time soon. Fifteen years ago, forecasts of peak supply were all the rage, with production from non-OPEC countries supposed to have started declining by now. In fact, production has surged, led by the US shale revolution, and supported by big increases in Brazil, Canada and elsewhere. In future, a lot of potential supply could come to the market from places like Iran, Iraq, Libya, Nigeria and Venezuela, if their various challenges can be overcome. There is no peak in sight for demand either.
“Peak supply” was based on the notion that the world would begin to run out of oil reserves, which eventually would weigh on prices. Among the reasons the theory is not true is future production. Nigeria and Venezuela have had problems with political tensions, and economic disasters. However, Venezuela has the world’s largest proven oil reserves, and Nigeria is in 10th place by the same measure. Sanctions against Iran could hamper its exports, for now. It has the fourth largest proven oil reserves in the world.
As demand increases, so does the strain on oil production and refinery capacity. This, in turn, probably will increase prices. IEA experts point out:
It is an extraordinary achievement for the global oil industry to meet the needs of a 100 mb/d market, but today, in 4Q18, we have reached new twin peaks for demand and supply by straining parts of the system to the limit. Recent production increases come at the expense of spare capacity, which is already down to only 2% of global demand, with further reductions likely to come. This strain could be with us for some time and it will likely be accompanied by higher prices, however much we regret them and their potential negative impact on the global economy.
The new records do not come without some cost.