Oil Outlook: Demand To Exceed Supply

There is plenty of oil and gasoline in the supply line now, which makes it hard to understand why their price is so high. But energy analysts looking ahead to the future say this surplus of energy won't last, meaning consumers better prepare for even higher prices to come.

The International Energy Agency (IEA) has released a report that tries to gauge what energy demand will be in the years ahead. It says the annual growth in oil demand could average 1.2 million barrels per day between now and 2016. The demand for natural gas, it says may grow even faster.

“This report shows that oil’s twilight as an industrial fuel continues, and it becomes ever more concentrated in the transport and petrochemical sectors,” said IEA Executive Director Nobuo Tanaka. “Gas on the other hand continues to increase in power generation as well as industry and space heating.”

Gas playing catch-up

Today, says Tanaka, oil is a genuinely global commodity. Gas markets have not yet reached that status, mainly because of special problems in transporting it.

With oil demand increasing, the price will remain high, if not increase. But the report also says the rising price makes it profitable to bring new supplies to market. Much of that new oil will come from Iraq, United Arab Emerites, Angola, Brazil, Canada, Kazakhstan and Columbia.

Natural gas liquids, biofuels and unconventional oil from the United States account for the lion’s share of new energy supplies, the report said.

As demand rises, so will the price. However, the report notes that rising energy prices can, as they did in 2008 and may be doing now, depress the economy. A shrinking economy would require less oil, not more, so demand would fall, and so would the price.

Much of the new demand will come from China, not the United States, according to the report.