Fall in demand for oil is a bit of an oxymoron. Yet, OPEC ministers are losing their sleep over increasing in the global efforts to reduce dependence on oil. In a recent statement, OPEC has warned that it may respond to efforts of curbing oil demand by stunting supply and limiting investment in its oilfields.
OPEC believes that its members (oil producers) are as ‘addicted‘ to oil revenues as consumers are dependent on regular supplies. Although, the current prices are skyrocketing, there is a prospect of a consequent crash in demand. OPEC is troubled by the thoughts of a repeat of the mid-1980s scenario, when sky-high prices caused a sudden slump in demand and a flood of new supply of oil, eventually brought down crude prices to rock bottom levels.
In its monthly oil bulletin, OPEC said:
What the leaders and opinion makers of consuming countries seem to have overlooked is that producing countries need security of demand since they, too, are dependent on oil.
The comments come in the wake of a U.S. proposal that seeks to reduce gasoline consumption of forecast demand. The U.S. Senate committee has sent a bill that would require the Energy Department to come up with a plan to reduce gasoline consumption of forecast demand by 20 per cent, 35 per cent and 45 per cent in 2017, 2025 and 2030 respectively. The legislation also seeks to boost the usage of alternative fuels. Still, the reaction of the global cartel is a bit premature because the primary hydrocarbons are expected to meet lion’s share of world’s energy needs irrespective of the increasing significance of the alternative fuels.
The Saudi Arabian oil minister, Ali bin Ibrahim al-Nuaimi, has said that a drive towards fuel efficiency might trigger a slowdown in the investment by the OPEC members. He says further expansion of Saudi Arabia’s production capacity may not be needed as consumers switch over to ethanol and try to conserve oil. The kingdom - world’s larget exporter of oil - is enhancing its capacity from 11.3 million barrels per day now to 12.5 million barrels per day by the end of 2009. Ali al-Nuaimi has said:
Our feeling now with this thrust and push for conservation, efficiency and the use of alternatives is that we probably need not go beyond 12.5 million barrels per day.
Saudis will ‘then watch the market for further signals.’ OPEC also says that its members will need to review ‘their future expansion plans.’
With oil prices hovering above $60 for quite a while now, such statements might seem a bit out of place and the oil experts view them as making little sense. It is in the interest of oil producers to enhance capacity and bring down the current level of prices to discourage conservation. The demand for reducing oil consumption is more when prices are high. A fall in prices, on the other hand, tends to reduce intensity of conservation efforts.
Source: Thepeninsulaqatar
