The Oil Drum: Australia/New Zealand

This is a guest post by Robert Smithson, a portfolio manager at a London based investment fund.

This is part one of a two part article on the economics of oil price demand. The second part looks at the economics of peak oil, and how the oil fits into an overall energy demand curve.

Introduction

“The world is consuming more oil than it is producing.” --The Economist, July 14-20 print edition.

Wow, that’s a shockingly foolish statement. Each day approximately 84 million barrels of oil are extracted from the earth, and approximately the same amount is consumed. It can be no other way: inventory space is limited, and could not be extended significantly by “excess production” or indeed drawn down for long by “excess demand”.

The problem is a basic lack of understanding of economics. And The Economist is hardly the only culprit.

(This is a post with the old comment thread for the post above...sorry to make you click back and forth...the new link is here.)