Oil Glut

By Isaac Cohen*
After falling more than 50 percent since last June, to the lowest level in six years, oil prices stabilized at around US $60 per barrel. This was partly a consequence of increased demand mainly caused by the severe winter weather, which is coming to an end in the Northern Hemisphere.
It is estimated that presently 1.5 million barrels per day are produced in excess of world demand. A temporary measure to reduce supply is to store some of the surplus, but storage capacity is decreasing rapidly. For instance, US oil inventories are at the highest levels in 80 years and according to the Energy Department, 70 percent of storage capacity has been used. Additionally, US producers are already leaving some oil on the ground, as revealed by a decrease of 46 percent, since October, in the number of active drilling rigs. Finally, in the United States there is a debate about authorizing crude exports, banned since the first Arab oil embargo of 1973. The American Petroleum Institute, which represents US oil companies, estimates that around 500,000 barrels per day could be exported, if the prohibition is lifted. However, while exports could decrease available supplies in the United States, they would contribute to lower world oil prices.
For all these reasons, in the short run, some analysts foresee another downward slide in world oil prices.
*International analyst and consultant. Commentator on economic and financial issues for CNN en Español TV and radio. Former Director, UNECLAC