So Are The Oil Markets Are Being Squeezed By Suppliers?
While it is widely accepted that the current oil price does not fully reflect the supply and demand situation, comments from BP this week have thrown some light on what is really happening in the oil markets. For the first time since 2002 the amount of oil supplied by the oil companies has fallen, with a decline of 0.2% in 2007. When you consider this is at a time when oil consumption has risen by 1.1% over the same period, the problems in the oil markets become a little clearer.
Interestingly, by reducing the supply of oil to the markets, the major oil companies around the world have benefitted two fold. Not only have they seen the price at which they can sell their oil increase substantially over the last 12 months, but they have also been able to revalue their reserves to take into account current prices. When you consider that many of the larger companies have literally billions of barrels of oil waiting to be extracted, this can give a very useful boost to their balance sheets.
It will be interesting to see how the oil companies respond when / if the price of oil starts to fall back, will they increase supplies to make up for the short fall in income?
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