The International Energy Agency may not have a solution but no one can accuse them of no longer understanding the gravity of the problem.

In their June report, the IEA warned that unless OPEC could increase production by at least 1.5 million barrels a day, world oil demand is going to surpass available supply during the second half of the year.

It means if there is not enough supply to match the 89 million barrels of oil the global economy is expected to burn every day, world oil prices have only one direction to go.

With no obvious end in sight to the Libyan conflict, and sectarian violence against oil fields and refineries suddenly on the rise in Iraq ahead of the scheduled U.S. troop withdrawal, the prospects are not promising for OPEC to increase supplies. This is even more evident given the region’s largest producer, Saudi Arabia, has little more to offer other than unwanted sour, heavy oil to add to the global supply mix.

At the same time, emerging power shortages sweeping across Asia will boost oil demand even when most major Asian economies are slowing, including the continent’s largest two economies, China and Japan. While an economic slowdown normally tames oil demand, both countries now face acute power shortages that will compel them to burn more diesel fuel to compensate for reductions in other forms of power generation.

In China, widespread drought earlier in the year has constrained hydroelectric power, while nearly two thirds of Japan’s nuclear power plants are currently, and for the foreseeable future, off-line, boosting that country’s appetite for diesel by hundreds of thousands of barrels a day.

With Brent crude prices having crossed into triple digit territory since the beginning of the year, fuel and power shortages are popping up around the world with increasing frequency. And they are beginning to exact a heavy economic toll.

In Pakistan, power shortages have ground the economy to a literal halt. Meanwhile, Japanese companies have already been ordered to cut back their power consumption by 15% this summer. And China is bracing itself for the worst power shortages since 2004, which triggered widespread economic disruption.

With the prospect of even a tighter oil market over the balance of the year, the IEA is warning motorists in member countries to get ready to pay more at the pumps. And the IEA has already suggested it might release additional oil from its strategic reserves to moderate further price increases.

But considering the recent release of 60 million barrels from member countries’ strategic stockpiles could barely hold down Brent world oil prices for more than a week, the IEA may have to come up with something a little more substantial the next time than the fuel equivalent for another 16 hours of world oil demand .







  • Rojelio

    Most of the experts have said that peak oil was about 2005 and production has been on a plateau since then. One has to wonder if the plateau is now breaking to a downside. When do we get firm evidence for whether or not natural gas is really going to extend the party for awhile or if it is mostly hype?

  • JB

    One wonders if TPTB are contemplating, as a “solution” to the current energy supply problem, another episode of demand destruction which could brutally start with a US default on its debt on 2 August and be shortly followed with an implosion of the Eurozone or vice versa…

  • Rojelio

    I’m not sure exactly the TPTB are, but don’t the big boys (megabankers, hedge fund managers, etc….) start losing free money if they don’t increase the debt ceiling and crank up the printing press?

  • Plantagenet

    I’m skeptical that oil demand will grow enough to create the supply shortfall that Mr. Rubin and the IEA are predicting for the second half of 2011.  

    With the US and EU economies already slowing, I think there is a real chance of another recession occurring during the second half of 2011, with oil demand actually dropping enough to forestall the predicted oil production shortage.

  • Instincts

    The U.S. Empire has been falling for the better part of the last decade, but the right wing/militarian dominants and their egos within that nation refuse to recognize and acknowledge or accept it.

    Unless nations such as the U.S. (and many others) realize and accept that they simply must learn to live within their means, and scrap this almost globally ubiquitous flawed socio-economic model that assumes infinite growth while ignoring the limits and laws that finite resources (real life things) imposes, then the U.S. and other nations like PIGS aren’t going to be the only ones to fall.

    When are we going to learn that this pointless struggle between nations to be the ‘last one standing’, from a socio-economic sense, isn’t ultimately going to achieve any real gains when the vast remaining world (inclusive of humanity/socio-economy AND the natural environment) around them has become so degraded that the End can hardly justify the Means?

    All this really is about is Earth’s human population, having become so unchecked, is well on its way into chaos and eventual crash, events well known to occur when any population that outgrows the basic resources that are the only thing maintaining that population in the first place!

    (temporarily) Tapping into stored fossil solar-derived energy, as well as some dumb-ass idea to try to infinitely create money by infinitely creating debt, only cheated us into thinking that we are beyond or immune to the basic natural laws and limits of this planet.

    It isn’t a coincidence that S@!# is simultaneously hitting the fan globally on the energy, monetary, and social order fronts.  These have become so intricately interdependent and self-indulged that most people have completely forgotten that at the end of the day, all that really matters is quality air, basic water & food, basic shelter, and adequate space — all of which can bring content exclusive of all the other crap that has complicated and clouded what people otherwise view to be ‘life’.

    Ya, there have been wars and much greater social disorder in the past.  But the game has changed this time.  This time its not a game where we get a second or additional chances — its the real-deal and we have one chance to get it right or humanity as we know it is toast (though arguably that might be a good thing).

    And it begins with embracing the reality that there simply will have to be fewer, not more, of us on Earth.