Oil price shock; you ain't seen nothing yet

Wiki Commons

Jeremy Warner
Telegraph

The most common cause of a spiking oil price is supply shock. We may be seeing just such a phenonenon right now with the effective shut down of Libyan oil. But sometimes it’s excessive demand that does the damage.

Forget the present turbulence, which may or may not be temporary. You don’t have to look far into the future, perhaps as little as a year to 18 months, to see that a major demand challenge is looming which even assuming no further disruption to existing production, will challenge the present supply base to breaking point.

As it is, it’s fair to assume the world is closer to full capacity than producers care to admit. Rewind to the last oil price shock in the summer of 2008, and Saudi Arabia, pumping out oil at the rate of around 9.5 million barrels a day, was having to draw on inventories to meet demand. It’s therefore reasonable to assume that 9.5 million bpd then represented maximum capacity.

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