The warnings may finally be coming true. Four months after the OECD warned that the soaring oil price could damage the economic recovery in developed nations (since when Brent has advanced another 19 per cent), the IEA has noticed that global oil demand has begun to flatline.
In its March Oil Market Report, it notes the first month of near-zero growth since the summer of 2009, which was just as the recovery was getting under way.
Part of the decline in demand is because of the Japanese refinery capacity which was knocked out by the earthquake and tsunami.
Thursday’s dramatic drop in the price of oil and other commodities has left markets reeling.
The rout has continued on Friday morning, and at the time of writing, Brent is down at around $105 a barrel, from about $125 on Monday.
But with no obvious trigger for the sell-off, traders and analysts are offering varying interpretations as to why it is happening, and, especially, why now.
Iraqi officials are preparing to cut the country’s oil output targets from 12m b/d to somewhere between 6.5m and 7m b/d, according to The Times.
The paper reports that ministers in Nouri al-Maliki’s regime argue that such a glut of supply could depress prices, and would outstrip demand. But experts have been warning for a long time that the country could never meet its initial targets anyway.
Oil production at the Sarir and Misla oilfields could restart within weeks, the Libyan National Transition Council has said.
The facilities above the wells had been shelled by Gaddafi loyalists, which brought production to a halt. But rebels are confident they could soon have oil flowing again down the pipeline to Tobruk, which they say has not been damaged. This would bring back an estimated 300,000 b/d of production, which could help the constrained oil markets.
The news, which was broken by Petroleum Economist, does not appear to have made a dent in the oil price though, which has bounced back after a shaky start this morning. That may be because the rebels have made similar predictions before, telling the FT in early March that production could restart in two weeks.
The only thing more surprising than the comment from Ali Naimi, the Saudi oil minister, that the oil market is oversupplied, is how seriously the market appears to have taken it. The oil price has dipped sharply today, according to some at least, because of Naimi’s comments.
The evidence Naimi cites is that the Saudis cut output last month by some 800,000 barrels per day. Some of this may have come from reduced Japanese output, after the earthquake put many of its refineries out of action. But this demand is likely to return relatively soon – it certainly shouldn’t be viewed as gone from the market in the long term.
In this week’s readers’ Q&A session, Amrita Sen, oil analyst at Barclays Capital, answers your questions.
In this second of two posts, she discusses drilling in the US, national oil subsidies and growing demand from the Middle East.
Earlier, she answered questions on whether speculation is driving up the oil price, whether such an increase could trigger another recession and when “peak oil” might occur.
(NB – Because of a very high volume of questions, we were not able to tackle every question submitted. Apologies if yours was not answered.)
Next week, Michael Bromwich, director of the US oceans regulator, will be answering your offshore-drilling queries. Email questions to email@example.com by the end of Sunday, April 10th.
But for now, over to Amrita: