Jeff Rubin: "Oil markets face production shortfall in second half"

"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...

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.

...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.

...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.

...China is bracing itself for the worst power shortages since 2004,
which triggered widespread economic disruption.

...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."

Jeff