As Demand For Oil Drops, Worries Rise For Debt-Heavy Companies
Weak global oil demand is keeping a lid on prices, according to a new report from the International Energy Agency (IEA), and that’s bad news for companies carrying a lot of debt.
Oil demand for 2014 will be lower than previously expected, prompting the IEA to downgrade its forecast by 180,000 barrels per day (bpd) for the year.
Flagging demand is helping to keep oil prices from spiking, which is fortunate, considering that violence in oil producing countries around the world is keeping a substantial portion of oil supplies offline.
The fact that prices have remained unusually stable over this period of global unrest is a result of weak global demand. Demand growth in the U.S. and Europe has been much softer than expected.
China has been the main driver in rising oil demand for years, so a slowing rate of consumption there could upend predictions about where global demand is going.
For oil companies, this is a troubling development. As oil becomes harder to find and more expensive to extract, oil drillers need prices to rise to continue to make a profit.
But the problem for the industry is that prices have stopped climbing even as costs continue to rise. At a Houston conference earlier this year, oil executives agonized over ballooning costs.
Until recently, higher production costs could be tolerated because prices were climbing. But with demand flat, prices have hovered around $100 per barrel, and there is plenty of oil sloshing around.
Source: oilpricecom
