Chinese oil demand is once more growing fast, rebel militants are threatening to attack pipelines in Nigeria, and tensions are again rising in the Gulf. Recent headlines are increasingly making it seem like 2003 all over again.
Now, as much of the world emerges from recession and as geopolitics and threats to energy supplies return to the fore, oil consumption is expected to rebound again, driven mostly by Asia and the Middle East.In recent times, oil has taken a back seat while the world has focused on the recession. As economies slowed, oil demand fell for two consecutive years, the first time that has happened since the early 1980s.
But the market is better equipped to handle the stresses this time around.
Thanks to the slowdown in energy consumption, OPEC producers now hold an estimated six million barrels a day of spare capacity, equal to roughly 7 percent of current demand, much of it in Saudi Arabia alone.
Such a cushion should shield the market from the wild excesses of the 2003-8 period, when prices rose as demand expanded, supplies fell, and spare capacity dwindled to a precariously slim level of well under two million barrels per day.
Yet considerable uncertainties remain. How fast will production drop in many of the world’s more mature regions, including Mexico and the North Sea? Will Russia surprise with another increase in its production this year? How effective will OPEC producers be in managing the market? And perhaps most importantly, how fast will demand grow?
In large part, the answer to many of these questions lies in what happens next to two countries that will be increasingly crucial in shaping the direction of oil markets well into the next decade: China and Iraq. Each captures the challenges that oil companies, OPEC producers and policy makers face in meeting energy demand and managing global supplies in the long term.
