The Oil Drum

Therefore it doesn't make sense that oil prices have fallen over the last few months.

I've begun to wonder about this a little bit myself.

However, we do need to keep recent oil prices in perspective--they are close to two-thirds higher since 5/05 than in the 20 months prior to 5/05 (Brent spot price of $62 on average after 5/05 versus $38 before). I suspect that this price spike was enough to kill off a lot of demand (and some people) in poorer countries, but it was obviously not enough to kill off any meaningful demand in rapidly developing and richer countries.

But we effectively have a supply/demand imbalance in OECD countries, where demand is being met by drawing down inventories. This can't continue indefinitely.

As I have suggested several times, the next round of bidding for declining petroleum exports will be much, much tougher than the last round of bidding.

BTW, the "Export Land" model rolls on. The NYT today, in an article on Venezuela, noted that Venezuelan car sales up up about 50% year over year. In many of the exporting countries like Venezuela we are seeing a lethal (lethal for export capacity) combination of strong cash flow and subsidized petroleum prices.