Global oil market on the threshold of critical shift from a period of scarcity to abundance

08-Oct-14

Despite a multitude of supply risks, oil prices have fallen as much as 20% since June 2014, plunging to their lowest level in two years. US oil imports are shrinking much faster than expected while oil production climbs to a thirty-year high, as per Reuters. Chinese economic growth, and therefore oil demand growth, is slowing. Even output in trouble spots like Libya and Iraq is rising after years of insurrection-led losses. As oil production swells, demand falters and prices slide, the global oil market appears on the verge of a pivotal shift from an era of scarcity to one of abundance. The price downtrend renewed speculation that the Organization of the Petroleum Exporting Countries (OPEC) may need to cut output for the first time in six years at its meet in November 2014. However, analysts say a long-anticipated fundamental shift in the market may now be under way, ending a four-year period when US$100-plus prices were the norm, and opening a new era in which OPEC restraint once again becomes paramount. Some analysts say it is too early to tell if the latest fall in prices is any different from previous declines, such as in 2012 and 2013, when events such as civil war in Libya and sanctions on Iran spurred sharp rebounds. A spurt in economic growth in Europe or another supply disruption could again push prices higher in the short term, but risks appear increasingly skewed lower. The implications of such a shift extend well beyond OPEC. It would likely accelerate shifts in the global balance of power, with consumer nations such as the United States becoming less dependent on producers like Russia or Iran, as per Reuters.