As a more affluent population in BRICs consumes more goods, fuel usage for transportation and farming also increases. According to a UN report earlier this year, the world population would reach seven billion later this year and increase to 14 billion by 2100, if left unchecked. This doesn't necessarily abide by the math rule of 'the more people, the more pressure on the resources of the planet' theory, as people from the wealthy nations consume more, and waste more. However, what happens when the poor move higher on the economic scale. They have every right to the resources too, don't they? Still, continued growth in BRIC countries means motorized vehicle usage will increase. IMF has, in its update of the WEO World Economic Outlook, predicts a growth rate of 7.8 percent for India, and 9.2 percent for China in 2012 next year. This will have a lever effect: less oil production capacity while the demand skyrockets.
According to Bureau of Economic analysis the US economy has declined by 1.8 percent in the first quarter. The latest U.S. job report showed a weak economic recovery with just 18,000 jobs created in June, and in the revised World economic outlook, IMF has since adjusted the growth for advanced economies to 2.5 percent from 2.6 percent. Indeed, the earthquake in Japan, the resultant disruption in the supply chain, and uncertainty with the varying pace of the economic recovery in the US economy's progress, are some of the reasons for the low demand for crude oil for the first half of 2011.
However, when US returns to faster growth, the Japanese economy bounces back, and Europe recovers from the debt crisis and thus a global recovery, what do we have in our hands, a supply deficit for oil.
In fact, Goldman predicts that the world economy would accelerate in the second half of the year itself, increasing demand. "Prices and returns will rise further later this year and into 2012," a report from the bank said, predicting that Brent crude would average at $120 in six months and $130 in 2012. An EIA report estimates that the oil demand will surpass production by 1.16 million barrels per day this year. The reports also suggests that the oil demand around the world to rise by 1.6 million bbl/d in 2012, a gap of 0.5 million barrels per day (only with increased production). The IMF, for its part, in the updated World Economic Outlook (WEO) for 2011, puts the assumed price for oil based on futures market at $105.25 in 2012. Analyst Hussein Allidina, from Morgan Stanley, said "We remain bullish on oil, particularly in the second half, and expect inventory draws will prompt OPEC to increase production, at the expense of spare capacity".
Of course, by 2012, we'll know which of these predictions come true, though wishful thinking hopes that, somehow, we've got it all wrong. Banks are bullish, you know why. But can we sit back, wait and watch as oil prices spiral, because spare capacity was exhausted?
So, really, did the Mayans predict the end of the world in 2012 or did they run out of space on their calendar? More like what Lady Macbeth said, "Almost at odds with morning, which is which." Superstitions and old wives tales aside, if we look at the oil supply/demand numbers, with close to 7 billion people, we are approaching the planet's carrying capacity. With the oil market set to go through a lot of stress in the coming year, 2012 will surely mark a turning point to remember.
