The economy in a bad shape right now. That's caused a global economic slowdown and.. it has resulted in lower demand for oil. While it's not quite good for the oil companies (not that I care about their wellbeing) it offers us a breather in the peak oil scenario and offers an illustration of some economic facts related to oil. If nothing else this demonstrates a statement by Peter Wells at the 2008 ASPO conference. He described the oil producing countries, especially Saudi Arabia, as knowing very well there's a fine line to tread in setting the oil price, make it too low and the oil gets used up rapidly (and their income is low), set it too high and the customers either go out of business or start looking for alternatives, and therefore they look for a middle ground in pricing oil to make enough profit to keep themselves happy while keeping it low enough to keep their customers from looking for alternatives.
One thing this means is that with lower current demand for oil indicates a possible "plateau peak". In The Shape of Oil to come I discussed the shape of the peak of oil production. Some people are "sharp peak" thinkers, saying the peak of oil production will be followed by a drastic reduction in oil production, whereas others are "plateau peak" thinkers saying the decline in production will be gradual. If the peak which occurred a couple years ago is truly the peak of oil production, a decline in oil demand due to economic woes will contribute to a gradual decline hence put us in a plateau peak scenario.
Having a decrease in oil production because of lower demand is preferable to a production decrease because the oil fields are physically incapable of producing more oil. It means there is still spare capacity in the oil fields in case the economy recovers and again increases demand for oil.
Demand for oil drops as outlook for G7 remains grim
The global crisis is sharply reducing demand for oil, and oil consumption is reaching levels last seen in the early 80s, a report from the International Energy Agency showed. The agency slashed its economic forecasts for the fourth time since October and now expects the world economy to contract by 1.4% this year, a sharp reversal from its previous forecast of modest growth.... The IEA is now forecasting that oil demand will fall by 2.4m barrels a day this year from 2008. The agency estimates that the world economy will need 83.4m of oil a day, 1m less than its previous forecast and the lowest level since 2004.... Oil inventories have built up to cover a "giddy 61.6 days" of consumption, the highest level since 1993. In response, producers have cut back output...The IEA expects producers outside Opec to pump about 50.3m barrels a day this year, down 300,000 from 2008.
Oil Prices: Is Crude Demand Collapsing or Not?
But do the new IEA numbers really mean that the global oil-demand picture is getting worse? ... In the IEA’s view, oil demand is collapsing a lot faster than supply, setting the stage for lower oil prices in coming months. ... weaker demand is partially offset by a big slump in crude production. The more that supply picture tightens—as oil companies postpone expensive new investments, for example—the likelier it is that oil prices will rebound, recession or not. ...
Believe it or not, there may be one compelling reason why we'd rather not crawl out too quickly from the economic crevasse into which we've fallen. Remember less than a year ago when crude was flirting with $150 a barrel? A sudden solution to our mounting economic difficulties in the face of declining oil production just might slingshot prices higher than we'd like to have them.
World is awash with oil as demand sinks: IEA
The world is awash with oil despite a price rally but the glut is hampering investment in fields which will be needed when demand pulls out of a "relentless" plunge the International Energy Agency (IEA) said on Friday.... Oil producers were "scrambling" to cut back on deliveries to limit a build up of inventories which were "now at a giddy 61.6 days (of consumption) for February", the highest level since 1993. The Organization of Petroleum Exporting Countries had cut its output overall by "an unprecedented" actual 3.36 million bpd since September to below 28 million bpd, the lowest level since just after the US-led invasion of Iraq in 2003. While the prospects for lower demand have muted concerns about a "supply crunch," the IEA warned that resulting low oil prices could undercut investment in future production.
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