OPEC cuts production, worries about demand

Website oilrigOct08.jpgTwo main factors weigh on oil markets. The first, as PetroMatrix note in their latest weekly report, is that speculative players in virtually all commodity markets are being forced to deleverage their positions, and so “the bottom will be dependent on the end of the firesale”. The other factor is the continuing fall in demand. OPEC’s own expectation, following its 1.5mbd production cut, is that global recession means the current “fall in demand will deepen, despite the approach of winter in the northern hemisphere”.
The risk is that all this uncertainty over future demand levels and prices starts to reduce future supply. A new draft study from the International Energy Agency suggests the world needs to replace 9.1% of current production every year, as existing fields reach the end of their life. As the Saudi cabinet warned on Monday, “continuation of investment” is therefore vital for the “safety and growth of the world economy”.

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