Pass The Buck

IEA says world in the grips of a 'third oil shock'

The world economy is staggering under a “third oil shock” and can expect little respite from sky-high crude prices over the next five years, the International Energy Agency said yesterday. “Record oil prices in the past several months have become a threat to the global economy and the social welfare of millions of people,” Nobuo Tanaka, executive director of the Paris-based energy watchdog, said as he released its newest five-year forecast. But those high prices will not spur enough new supply, nor force enough reductions in demand to provide significant relief to hard-pressed consumers and businesses. “While we have seen some weakening demand in the [developed world], supply constraints, refinery limitations and continued demand growth in key emerging markets will maintain pressure in the market over the medium term,” Tanaka told a Madrid press conference.

Existing oil fields worldwide are being depleted faster than had been believed, the agency reported, and it now requires an additional 3.5 million barrels a day of new production each year just to replace that decline. The IEA also rejected the widely held view that speculators are driving crude oil markets to new heights, though it applauded efforts by US regulators to improve transparency in futures markets. While investors have plowed some US$260-billion into oil-related futures – up from just $15B five years ago – the agency said there is no evidence that that avalanche of funds caused the stunning price runup. Both the Organization of Petroleum Exporting Countries and some members of the US Congress have blamed excessive speculation for the doubling of crude prices over the past year. But the IEA warned against a tendency to “scapegoat” speculators rather than face tough decisions. “Blaming speculation is an easy solution which avoids taking the necessary steps to improve supply-side access and investment, or to implement measures to improve energy efficiency,” the report said.
(Globe and Mail 080702)

The IEA is the 'watchdog'? They obviously haven't been doing their job very well if this is all coming as a big surprise. I'm not very surprised. I've been wondering why everything was deemed perfectly fine until the last six months or so, then whammo! Suddenly everything's changed. Yeesh.