March 12, 2008


Oil Price Bubble?: Supply is up, demand is down, yet the price is soaring. Here's why. (Ronald Bailey, March 12, 2008, Reason)

[G]asoline inventories are at their highest since March, 1993, notes Tim Evans, an energy futures analyst at Citigroup's Futures Perspective. World oil production was up 2.5 percent in the first quarter of 2008 over the same period in 2007 while world oil consumption rose by just 2 percent. In fact, world production is projected to be 3.3 percent higher in the second quarter and 4.1 percent higher in the third quarter than the same periods a year ago. On the other hand, world demand is projected to rise by just 1.6 percent over the next six months.

In fact, demand is falling in some countries. According to economist John Kemp at the commodities firm Sempra Metals, the U.S. consumed 4 percent less petroleum in January 2008 than it did the year before. Evans agrees, noting that the U.S. demand for petroleum products began falling off last July. Interestingly, this drop in U.S. oil consumption began before crude prices turned vertical and before we began to see weakness in the broader economy. Even China's thirst for oil is abating somewhat. Its demand for oil, which once rose at 10 percent per year, has now dropped to 6 percent per year. In addition, world surplus oil production capacity has gone from a very tight 1.5 million barrels per day a couple of years ago to more than 3 million barrels today, says petroleum economist Michael Lynch.

So supply is up; relative demand is down and yet, the price of oil is soaring. What's going on? Last week, Exxon Mobil CEO Rex Tillerson blamed a third of the recent run up in oil prices on the weak dollar, another third on geopolitical uncertainty, and the rest on market speculation. that they're always just bubbles.

Posted by Orrin Judd at March 12, 2008 9:43 PM

Yes, but timing is everything, especially in an election year: a price drop before November helps McCain, a price drop after helps HRC or BHO.

Posted by: PapayaSF at March 12, 2008 11:38 PM

Too bad the "Dollar Bubble" burst in 02 or 04.

Too bad we can't print more oil. That 1/3rd isn't getting better any time soon.

Posted by: Bruno at March 13, 2008 7:23 AM

We have more oil than we'll ever use, but insufficient debt.

Posted by: oj at March 13, 2008 8:45 AM

Anyone else think the "recession" is being orchestrated to prop up the Democrats?

Posted by: erp at March 13, 2008 9:08 AM

erp: yes, it's been noted that the media always seems to find lots of bad news in the fourth year of any Republican administration. Not that there isn't bad economic news to report at the moment....

Posted by: PapayaSF at March 13, 2008 3:34 PM