The oil supply doesn’t seem to be meeting the demand and the scarcity in oil is adding to the anxiety of the market as official output of OPEC has remained unchanged.
The market will remain anxious over the scarce oil supplies that would continue after OPEC (Organization of the Petroleum Exporting Countries) left its production (official) level unchanged. However, the organization was anticipated to raise the production of oil in December 2007, as per the International Energy Agency (IEA), according to the news reported by Forbes.
While the shortage of the official production increased by the OPEC 10 (Algeria, Indonesia, Kuwait, Iran, Libya, Nigeria, Saudi Arabia, Qatar, Venezuela and United Arab Emirates) may slightly chill the present market anxiety, the IEA knows that the total OPEC output has been significantly higher, largely from Angola and Iraq, than anticipated. There are indications that more oil was produced by the OPEC in December 2007.
So the volatility in the oil price will continue to affect the market. The widespread wrong observation of current tightness in the market and the apprehensions regarding the future seems to have intensified growing speculations in the futures market. Oil production is also not in line with the actual demand. In addition, the global housing industries, like the US and the UK, are also not showing indications of growth that can retreat the oil prices back to normal.
Also, several countries that produce oil require hike in prices to build their economy. Oil companies squabble that any price hike will benefit consumers, as they require additional supplies, particularly from higher-cost sources of oil, for example, the Canadian tar sands. A few environmentalists opine that high prices promote more energy efficiency.
As per the industry experts, the primary center of growth in oil demand is developing countries like India and China. This is because the level of usage is quite high in both the countries. Also, the growth prospects of these countries don’t seem to be impacted by the US.
As per a Senior Research Analyst at RNCOS, “The increase in oil demand, decrease in the production of oil and increasing oil price has become a nuisance for oil producing countries. However, OPEC many a times offers solutions to stabilize the oil market but cannot satisfy oil-producing countries. By observing the poor conditions of the housing industry in developed countries, oil production should be raised to meet the demand. In addition to this, after observing all these troubles, the government should promote alternative fuels usage.”
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