Heavy Lifting - thoughts and web finds by an economist
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Tuesday, April 06, 2004


Consume more oil products, it's for your own good...


This from the FAQ at OPEC's website (www.opec.org)

Yes, oil consumers need steady supplies of oil, and oil producers rely on steady demand. If demand changed suddenly it would have a major impact on the profitability of oil producers and the economies of many countries around the world.

Oil production is a long-term affair: the oil industry works 24 hours a day, 365 days a year, excluding maintenance or bad weather and other disruptions. Oil facilities require many millions of dollars of investment, and the investors try to earn a reasonable return on their capital.

A downturn in oil demand could force oil production to slow down or stop. This could physically damage the oil fields, reducing the amount of oil that can be recovered in future. The oil installations could also be damaged. Some facilities, such as those operating in the oceans, are very difficult and expensive to shut down.

When production slows down, oil producers might be forced to lay off staff. Downstream operators, such as gasoline retailers, refiners and transport companies, could also be forced to shed staff.

If oil producers receive lower incomes they must spend less money and import fewer goods from oil consumers. If investors are unsure about the risks and the likely returns from petroleum investments they may not make those investments. If we do not invest enough money, or do it far enough in advance, then the world could face a shortage of oil supplies and a downward spiral in the global economy.

However, if oil producers continue to receive reasonable prices and stable demand, they will maintain their production and invest far enough in advance to meet the growth of demand.

Thus the security of oil supplies relies upon the security of oil demand. Oil producers - and oil consumers - need to work together to ensure that the security of oil supply and demand are preserved (emphasis mine).


So drive early and drive often, OPEC is here to help you.

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