BUSINESS: OPEC Struggles To Keep Up With World Demand, page 1

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Topic started on 12-5-2004 @ 01:40 PM by dbates

Is OPEC unable to supply enough oil for the world's energy needs? Some believe this to be true, and the price you pay at the pump has made a steady climb this year. Now, even after OPEC is producing at a rate over 2 million barrels a day (m b/d) above their quota, the price of oil has hit levels not seen since after Iraq invaded Kuwait. Some fear that growing energy demands by China, and the upcoming summer season in the U.S., will drive the cost of oil to new record levels not seen since the early 1980s.

Reuters
Oil prices burst to new 13-year highs above $40 a barrel on Wednesday on concern that OPEC may not pump enough oil to meet rapidly accelerating world oil demand.

OPEC President Purnomo Yusgiantoro of Indonesia said on Wednesday the cartel is already pumping more than two million barrels daily in excess of official supply limits in a bid to cool world oil prices.

"We have not discouraged our members from producing more because we want to do everything we can to stabilize prices," Purnomo was quoted as saying in a statement released from OPEC headquarters.

Oil producing countries outside of OPEC are already producing at full capacity, and OPEC provides the only peak response in the world. If the full truth is to be told, only Saudi Arabia can provide "excess" production to meet peak demands. This ability is being brought in to question by Matthew R. Simmons, who is the president of a special energy investment banking firm in Houston. The International Energy Association assumes that Saudi Arabia's production will double in the next 15 to 20 years, but after analyzing over 200 technical papers from the Society of Petroleum Engineers, Simmons disagrees and states that production in Saudi Arabia may have already peaked and could start dropping as soon as 2010.

Some analyst disagree with Simmons, but it is hard to overlook the facts that the U.S. oil reserves are running low, gas prices keep rising, and the current world production is starting to lag behind demand. If the demand for any other product was growing at the same rate, and the price kept increasing, a surge in supply should follow. That is unless there actually is a shortage for that product. So, we either have a case of price fixing, and product hording, or we actually are seeing the first signs of a supply problem. Either way, the International Energy Agency said there was no relief in sight from high prices.

This chart shows the amount of excess oil production. Not a lot when you consider that the U.S. alone, uses over 20 m b/d

Is the gas price rollercoaster stuck on an eternal hill?

Additional Sources:
IAGS - NEW STUDY RAISES DOUBTS ABOUT SAUDI OIL RESERVES
International Energy Agency
Energy Information Administration
WTRG Economics

[Edited for appearance on ATSNN]

[Edited on 13-5-2004 by dbates]

[Edited on 13-5-2004 by dbates]