Analysts: Tight Oil Supply Will Last For Years

The world's oil supply is expected to be stretched thin for another two to three years, even as demand decreases and the world oil industry boost exploration and production investments in 2005.

That could keep prices for gasoline, heating oil and other petroleum-based products high by recent historical standards, perhaps through 2007, even though analysts say the price of oil itself is likely to fall below $50 a barrel and possibly below $40 a barrel as early as next year.
Analysts say higher-than-usual prices are needed to moderate consumer and industrial demand and to spur enough new drilling to give oil markets a bigger supply cushion.

OPEC countries and Saudi Arabia in particular, has the ability to fortify world oil supplies much more substantially than privately owned companies, but analysts said this creates a dilemma for the cartel.
Yet output -- the actual number of barrels produced -- is likely to grow only slightly faster than demand, at least in the near-term, leaving global supplies uncomfortably low.

In 2004, the challenge of satisfying the world's oil thirst has been made difficult by the surprisingly rapid rise in demand, particularly in China. It has been heightened by the war in Iraq, hurricanes in the Gulf of Mexico and petro-politics in Russia.
Daily demand surged this year by about 2.8 million barrels to 82.4 million barrels. That's anywhere from one-third to one-fifth of the buffer the industry had been accustomed to over the prior decade.

According to the International Energy Agency estimates daily demand will rise next year by 1.5 million barrels -- roughly the amount by which analysts expect non-OPEC production to grow.

Nevertheless, many analysts believe that the oil companies should spend more money on exploration and production.