1. DEMAND FOR OIL

2. Demand Global oil demand has been increasing at a rate of 2% a year.

3. Demand The world consumes 80 million barrels a day today. By 2035, it could be consuming as much as 140 million barrels a day.

4. Demand The surge in demand for oil in East Asia (mostly China) has been especially large, and growing extremely quickly.

5. Demand The increased demand from East Asia has been far greater than any decreases in demand by Europeans and North Americans.

6. Implications A 2% annual growth rate in demand is going to put tremendous pressure on the oil industry to expand production. It is already doing just that.

7. Implications A 2% annual growth rate in demand is going to put tremendous pressure on the oil markets, eliminating any margin for error.

8. Implications Apparently, we are already close to a situation where there is very little surplus oil available, should there be any disruption in supply.

9. Implications There is no slack in the system, and there is none in the foreseeable future.

10. Implications What this means is that we will experience oil price shocks in the future. This is because oil prices adjust, but never in a smooth or steady fashion.

11. Implications It has been estimated that it takes a 30% increase in the price of oil to produce a 3% decrease in demand.

12. Implications Consequently, any sudden tightening of the oil market will show up as a very rapid increase in the price of petroleum and petroleum products.