It's a basic law of supply and demand: as the price rises for something, supply generally increases.
So as we plow through $109, $110 and $111 for a barrel of crude on the NYMEX, let's all stop and consider that last month, as the price of oil was breaking all sorts of records, OPEC added a whopping 80,000 b/d in supply to the market. That's about one-tenth of 1 percent of world supply.
Consumers find this maddening, of course. But consider a few things.
First of all, demand is down. But non-OPEC supply is down also, according to the latest report of the International Energy Agency released earlier this week. In fact, they're down by an equivalent amount, according to the IEA, so that the call on OPEC crude -- defined as demand less the amount of crude that OPEC needs to produce to equal non-OPEC crude and other liquids supply plus OPEC non-crude liquids supply -- is unchanged.
The call, according to the IEA for all of 2008, is 31.8 million b/d, which is less than OPEC is producing now, whether it's based on the Platts' estimate or the IEA estimate. So OPEC can rightfully conclude that it is putting enough oil on the market, with a cushion for building stocks.
But there's something else to consider when trying to figure out why OPEC individual members don't seem to be taking advantage of putting more oil on the market and reaping some of these high prices. Maybe they just can't.
There's no doubt that Indonesia is capped at its current level of about 860,000 b/d. Venezuela is stuck at 2.4 million b/d, and given the turmoil in that country, it would be miraculous if it didn't drop further. Nigeria's constraints remain, with a fluctuating capacity that might move 200,000 to 300,000 b/d. And the Saudi output of 9.15 million b/d, down 50,000 b/d from a month earlier, is going to be viewed with suspicion by peak oil theorists who believe the country is near its maximum capacity, Saudi statements to the contrary notwithstanding.
In fact, the only country with a significant move upward for the month was Iraq, which increased output by about 110,000 b/d. It's doubtful the world wants to hang its hopes for more supply on that nation.
The most discouraging part of the report for consumers was that the IEA cut its previous estimate of non-OPEC supply growth for the year 100,000 b/d. That's still 900,000 b/d more than 2007, but clearly not enough to undermine the tight supply/demand balance.
I think that increase the production of oil in 80K b/d, will help a little, but isn't the solution, the demand is going and going down for the consumers. Not only the value of $$ is lower this time, and the people aren't more consumers of any product...they need to save a little on these days. The producers need to change some of the process to have oil, or could decrease the prices, or start to think in some combination to make an alternative product of everybody. Thx!