Oil Demand Up, What About Supply?

The International Energy Agency (IEA) raised its 2010 world oil demand forecast to 86.5 million barrels a day—up 170,000 from its January report and 1.8 percent higher than oil demand in 2009.

The upward revision comes on the heels of increased economic activity in Asia—which has led the global recovery so far. Oil industry consultant PIRA estimates that Asia has accounted for half of global economic growth over the past decade as Asia’s share of world GDP has jumped from 18 to 26 percent. Nearly half—44 percent—of the 170,000 barrels per day increase from last month came from China.

While Asia has been the driving force, the effects of an economic recovery affecting energy demand are being seen across the globe. North America, Asia, Europe and the former Soviet Union (FSU) countries are all back to where demand was in 2008, when the oil price approached $150 per barrel.

PIRA is forecasting world oil demand to increase by 2 percent in 2010—more than half of that growth coming from “less developed” countries. They see demand growth in all areas of the world besides Japan—which is expected to remain flat.

And we’ve pointed out on many occasions that, while demand is growing, the long-term supply response has been weak. The low-hanging fruit has been harvested and now it is increasingly difficult, costly and sometimes dangerous to find and develop large new oil fields.

This growing imbalance between demand and supply raises the chances of shortages that could drive prices significantly higher in coming years.

This is a syndicated post. Read the original here.