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IHS CERA Chairman, Daniel Yergin addressed a panel of industry leaders and global energy experts during a panel on the future of oil prices at the St. Petersburg Economic Forum in Russia on June 5.
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| IHS CERA Chairman, Daniel Yergin and International Energy Agency Executive Director, Nobuo Tanaka during a panel at the St. Petersburg Economic Forum |
World oil prices, after collapsing from all-time record highs and falling at times to levels as low as $100 per barrel less over the past year, have recently been moving steadily upward.
However, Dr. Yergin noted that the recent upward swing in oil prices does not reflect fundamentals and the overhang of spare capacity—expected to be at an average of 6.5 million barrels per day in 2009 up from 2.5mbd last year.
“The recent upswing in oil prices does not reflect supply and demand,” Dr. Yergin said afterwards. “Rather, they reflect a ‘pent-up demand’ for demand, a weak U.S. dollar and expectations for an economic recovery and higher inflation.”
The impact of the current economic downturn effectively reduced global oil demand to pre-2005 levels and is threatening future supply development, Dr. Yergin said.
He noted a recent IHS CERA study that found more than half of the expected growth in oil production capacity over the next five years is “at risk” of deferment or cancellation in today’s economic environment, which could lead to a severe retightening on oil markets in the future.
While demand can—and does—change abruptly in response to shifts in global economic conditions, oil capacity does not, Dr. Yergin added. He observed that, given the long-term nature of the oil industry, decisions made today will have a major impact on output years from now.
Dr. Yergin observed that government policies will become especially critical in this atmosphere.
“It is important at this time to remember the value of more open markets and the flexibility and adaptation that they bring in order to be resilient to the new shocks and surprises that lie ahead.”
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