Dan Hassey: When people want something badly enough, generally they are willing to pay up to get it.
Whether it’s gold, oil, stocks or the prices you pay for groceries or clothes — supply and demand typically drive prices.
Using that logic, it makes sense that — with oil prices stalled in the $45-per-barrel range — you’re hearing things like:
• “The World is Awash in Oil!”
• “For Saudis, Falling Demand for Oil is the Biggest Concern”
• “Oil Demand is Crumbling!”
However, in the oil patch, things aren’t working the way many people are used to seeing them work.
This not only impacts what the forecasters are telling us to expect. It also means many investors are making decisions based on some of these incorrect assumptions.
So, is the world awash in oil? According to global data, not so much …
That’s because we have a pretty balanced supply/demand picture.
At the end of 2014’s fourth quarter, global oil supply was a little over 94 million barrels a day.
At the same time, global oil demand was about 93 million barrels a day.
This means there was a surplus of about 1 million barrels per day.
Also, notice that demand is increasing each year.
In fact, by the end of the year, supply and demand of about 94 million barrels a day will be in equilibrium.
Demand normally falls in the winter and spring, but increases by summertime as each year. So, as you can see from the chart above, we can expect oil prices to climb by summertime.
Global demand for oil for the next few months looks like it will drop to about 92 million barrels a day, so the surplus will go higher by about 2 million barrels a day.
Once again, this is a far cry from the headlines that the “world is swimming in oil.”
Over the last seven years, we’ve seen these kinds of surpluses before. And the most that oil prices have fallen is to the low-$70s per barrel
However, with OPEC not supporting prices, that leaves the futures market to determine prices.