Wikinvest Wire

We're going to need a good recession

Monday, July 09, 2007

The International Energy Agency released their "Medium-Term Oil Market Report" a short time ago - it looks like we're going to need a good recession to avoid much higher energy prices over the next few years.

Thought you might like to hear that first thing on a Monday morning - here's why:

Apparently, demand is expected to win out over supply in the years ahead, largely a result of increasing consumption by Non-OECD Countries.

All the OECD countries are shown in blue below, non-OECD countries would probably be everything else.

They must hate being referred to in this way - being called a non-anything sounds condescending and with an acronym like OECD, you never know whether the first "n" should be capitalized.

Here's a chart for the supply side - forecasts for non-OPEC oil production are being revised downward:

Now "non-OPEC" doesn't sound nearly as bad as "non-OECD" - why is that?

Here's the scariest part - the world is counting on increasing output from Saudi Arabia over the next few years to help keep demand from getting too far ahead of supply:

Oh Dear! Does the world have enough drill rigs to make this happen?

The entire report(.pdf) is free at the Wall Street Journal, maybe it would be a good idea to read the thing instead of just picking out charts - there might be more on this later today.

The first paragraph of the WSJ story($) must have created a sense of urgency to share this news with readers.

In a dire forecast, the Paris-based International Energy Agency is warning of an impending crunch in the supply of oil and natural gas needed to power world economic growth in coming years.
It looks like we're going to need a good recession.

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Piggly Wiggly said...

There is some good discussion today on this over at The Oil Drum. There is a definite degree of surprise that the IEA has come out of the closet on this issue.

It seems to stand in contrast to Dan Yergin's CERA predictions.

Tim said...

I think they'll have a post up pretty soon on this topic - I just got some mail from them.

Lord said...

Then it looks like we're going to have a good recession.

tj & the bear said...

Is there such a thing as a "good recession"?

Reportedly the Saudis have been drilling like mad and yet can barely maintain 9mbd. Meanwhile, Pemex keeps revising it's future production estimates downward.

Matt Simmons believes that energy will be THE ISSUE come the next presidential election. I think he's right.

d said...

Oil really is not that expensive if you adjust it for US currency depreciation.

Although a recession would be the end result, simply raising the interest rates will strengthen the Dollar.

Strong dollar -> cheap oil.

But seriously, even if a democrat wins presidency, will they want cheap oil?

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