Oil is set to be volatile in the short term as world energy supply outstrips consumption while demand in China and the developing world exceeds use in the rich industrialized economies, BP said on Wednesday. Presenting the annual Statistical Review of World Energy, BP Chief Executive Tony Hayward said the centerof gravity in global energy markets had tilted “sharply and irreversibly towards the emerging nations of the world, especially China.” As deep recession had eroded oil demand in the United States and other developed economies, cutting US oil use by 6.4 percent last year, consumption in China continued to grow, rising 3.3 percent in 2008. Oil prices hit a record high of almost $150 per barrel last July before crashing to a low of almost $32 in December - the weakest in nearly five years - as recession and financial crisis bit deep into western energy demand. But over the last six months, oil prices have recovered and oil futures traded above $71 a barrel for the first time in seven months on Wednesday. Hayward said he expected volatility for some time to come. “The gap between production and consumption has continued for 2009 and the resulting build-up in spare capacity is an indication of the potential downward volatility which we could still see in the short-to-medium term,” Hayward said. “This shift will bring volatility in the short term.” Asked about oil prices, Hayward said it could be argued that $60-$90 per barrel was the right range for oil because it would support investment in new supply without destroying demand. “There is a rational argument to say that somewhere between $60 to $90 a barrel is the right sort of level,” Hayward said. Global oil consumption fell by 420,000 barrels per day (bpd) last year, the biggest decline since 1982, BP said. Fuel use continued to increase in emerging economies, most notably China, which consumed an extra 260,000 bpd, but the developed world used much less. OECD consumption dropped by 1.5 million bpd, led by a 1.3 million bpd fall in the United States, the world's biggest fuel burner. “In 2008, the world was no longer supply constrained as production growth exceeded that of consumption for all fossil fuels, particularly later in the year,” Hayward said. “Our data confirms the world has enough proved reserves of oil, natural gas and coal to meet the world's needs for decades to come. The challenges the world faces in growing supplies to meet future demand are not below ground, they are above ground.” Oil production increased by 380,000 bpd to 81.8 million bpd, the statistical review said. Although the OPEC agreed to implement output cuts late last year, its 2008 production was still 990,000 bpd higher. Production from non-OPEC Russia dropped by 90,000 bpd, the first decline since 1998, and OECD output fell by 750,000 bpd. Mexican oil production, which shrank by 310,000 bpd, experienced the biggest decline. The annual review said the world's proven oil reserves fell by three billion barrels to 1.258 trillion barrels by the end of 2008 from a revised 1.261 trillion at the end of 2007. Declines in countries including Russia, Norway and China offset increases in Vietnam, India and Egypt. Oil prices surged again Wednesday to a new high for the year with investors pouring money into crude markets as a hedge against inflation. Adding to crude's advance was new government data that showed an uptick in US demand for gasoline, yet given how much cheaper gas is compared to last year, the recession is clearly taking a toll on consumers and businesses. Benchmark crude for July delivery rose $1.32 to settle at $71.33 a barrel in trading on the New York Mercantile Exchange after earlier touching $71.79. In London, Brent prices rose in tandem with Nymex crude, gaining $1.11 cents to $70.73 a barrel on the ICE Futures exchange. In other Nymex trading, gasoline rose by 4.86 cents to settle at $2.0153 a gallon while heating oil settled at $1.8326 a gallon – up 2.5 cents. Natural gas for July delivery fell 2.3 cents to $3.708 per 1,000 cubic feet.
