The numbers from the EIA today were mixed, with crude inventories up and gasoline down at a time when they both should be building ahead of the summer driving season.  

Today the IEA came out with an upward revision of their forecast that caused futures to close at an historic high of $40.73, surpassing the previous record of $40.42 set November 11, 1990.  Oil Demand to Rise the Most in 16 Years. The IEA predicts that world petroleum consumption will increase 2 million barrels per day over 2003. See Oil Market Report (PDF). The EIA's forecast released yesterday has year- over-year increase of 1.6 million barrels per day in 2004 and another 1.9 million b/d in 2005. If correct there is not enough excess capacity in the world to meet 2005 demand. Virtually all of the increases come from developing countries, with the largest increases in China and the rest of Asia. 

Taking a closer look at the supply problem using the EIA's most recent estimates of OPEC's excess capacity gives little basis for optimism.  There are two countries within OPEC, Indonesia and Venezuela, which are producing below their quotas.  Both are at full capacity and are each about 250,000 barrels per day below quota. See Short-Term Outlook.

Algeria, Iran, Kuwait, Libya, and Nigeria are all producing over quota but are at 100 percent of capacity. Only Saudi Arabia, United Arab Emirates and Qatar have any excess capacity. Virtually all of that capacity is in the hands of Saudi Arabia. A quota increase would do little more than legitimize current overproduction by everybody but the UAE. A quota increase is meaningless.  

Short-term, there is only one thing that is relevant on the production side - Does Saudi Arabia intend to increase production and are they willing to add a million barrels or more to current production?  Until that question is answered it is unlikely that there will be any respite in price increases. 

Later we will look, with little success, at international exploration activity for signs of capacity expansion.