The price of oil is under pressure – high stocks and soft demand

The oil price has been a focus of attention for half a year or so since it dropped rapidly last year when Saudi Arabia stopped restricting supply.  The immediate effect was to put pressure on marginal sources, like fracking, and to give consumers a break.

This report by The Economist offers valuable insight, saying that the industry believes that the decline in prices will be long term. While a recent bump in prices has been driven by production going to restocking rather than sales, inventory is nearly at full capacity and so restocking will not provide relief from the steady supply.

Large oil firms have cut capital spending budgets by 20% and see new discoveries falling.  That would suggest a rise in prices, but inventory is high, production is stable and demand is not growing.  As big business, government policy and consumer behaviour increasingly turns to sustainable energy alternatives, the demand for burning oil may decline.  Let us hope so.

The Economist: The Saudi Project, part two



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