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Wednesday, April 09, 2008

Running With the Bulls: EIA Says $100 Oil “New Norm”

Chalk up another convert from the oil bear camp: The U.S. Energy Information Administration has given up on seeing double-digit oil prices this year, and says $100 oil—and loads of volatility in crude markets—is the “new norm.” That’s a sudden shift from the $87 barrel of oil the EIA was forecasting in January.

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They’ve got company. (Associated Press)

What gives? For the U.S. energy agency, sustained high oil prices can’t be solely attributed to financial speculation, as many analysts insist. But it’s not entirely a supply shortfall either, though excess capacity is tight. Rather, it’s a double-whammy of increasing oil consumption in developing economies and greater domestic consumption in oil-exporting countries that offsets U.S. belt-tightening during the slowdown. Notes Neil King in the WSJ (sub reqd.):

Oil demand continues to grow briskly in China, India and Russia, where fuel prices are heavily subsidized. In the Middle East, soaring energy needs and shortfalls in natural-gas supplies mean major exporters such as Saudi Arabia and the United Arab Emirates must use more oil at home. The EIA predicts that even with falling consumption in the U.S., oil demand world-wide will jump by 1.2 million barrels a day this year.

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