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June 27, 2005
Impending Oil Glut?
A new report by Cambridge Energy Research Associates finds that an oil supply glut is likely to occur later this decade. Supply could exceed demand by as much as 6 to 7.5 million barrels per day, based on a field by field analysis by CERA.
Their research indicates that roughly 20-30 new major projects (defined as production capacity of greater than 75,000 barrels per day) will be coming onstream every year between now and 2010. These projects will add three to four million barrels per day of capcity annually.
Consequently, says CERA:
The balance of supply over demand has the potential to expand significantly over the next five years, and this could drive oil prices to the downside. If demand growth averages a relatively strong 2.2% through 2010, prices could weaken from recent record highs and slip well below $40/bbl as 2007-08 nears. If demand growth were notably weaker, a steeper price fall would be conceivable; however such a fall would likely slow capacity expansion and bring a market rebalance within two to three years.
The major risk to their analysis, they acknowledge, are political or operating factors which delay this capacity expansion.
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