[reality]

When oil prices last approached $80 a barrel, a year ago, pundits put it down to the “fear factor”. Oil was not in short supply and stocks were increasing. But producers were pumping flat out, leaving little spare capacity. A nasty hurricane in the Gulf of Mexico or a political storm over Iran would, the theory ran, create a shortfall. When neither fear materialised and stocks continued to climb, the price quickly subsided. This time around, however, facts have replaced fears: the world is consuming more oil than it is producing.

Last summer, as stocks started to rise, Saudi Arabia began cutting back its production. These cuts were formalised, and extended, at subsequent summits of the Organisation of the Petroleum Exporting Countries (OPEC). As a result, OPEC's members are now producing roughly 1m fewer barrels per day (bpd) than they were this time last year. Meanwhile, global demand has risen by over 1m bpd, to over 84m. The inevitable result is falling stocks, at a time when they would normally be rising. Since 1999, stocks have grown by 840,000 bpd on average in the second quarter, according to Leo Drollas of the Centre for Global Energy Studies. This year, however, they fell by 140,000 bpd.


Traders, fearful of shortages later in the year, are pushing up prices. Goldman Sachs issued a report last week arguing that prices could rise as high as $95 a barrel later in the year unless OPEC opened the taps.