Increase supply means lower oil prices

The increasing supply of oil and natural gas needs to translate into lower energy prices at the consumer level, in order for any cyclical upturn in economic activity and asset prices. I’m not sure how much of the current price factors in the Syrian rebellion and Iranian sanctions but it’s difficult to believe that Brent is trading at $115 considering all of the persistent weak economic news.

It would advisable for producers of thick tar sand oil (such as Canada and Venezuela) to ramp up extraction before it becomes uneconomic. With Chavez’s recent re-election and PSVDA’s recent disruptions, along with Canada’s trade deficit under pressure due to falling metal commodity prices it is plausible that this will happen.

Further to a recent post where I refer to lower oil prices into the end of the decade, below is an extract of a news story sourced from Bloomberg referencing recent comments from the International Energy Agency (IEA).

“The IEA suggests oil demand is basically going to be unchanged and that’s not going to lend support to the market,” said Gene McGillian, an analyst and broker at Tradition Energy inStamford, Connecticut. “The more-than-ample supply we have here is preventing oil from breaking off.”

The Paris-based agency also said global markets will become better supplied in the next five years as demand growth slows and production rises in North America and the Middle East.

Worldwide fuel consumption is projected to rise to 95.7 million barrels a day in 2017 from 89 million last year, the IEA said. Output is forecast to advance about 1.5 million barrels a day each year to 102 million barrels a day in the same period.

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