Oil demand changes as fiscal cliff looms


The fiscal cliff has had a major impact on energy prices

As this blog has mentioned in the past, oilfield producers have to be cognizant of any economic changes – whether they are positive or negative – and adjust their operational strategies accordingly. Economic shifts can have a major impact on energy demand, but these changes can happen instantly.

Most of this month's financial news has been about the fiscal cliff and the actions Congress and President Barack Obama are taking to avoid going over it. These discussions have evoked concern among both the American people and the nation's businesses, with the ramifications are being felt across the economic spectrum. One area where concern remains high is in the oil and gas market.

According to a report from the Associated Press, oil prices have dropped by a significant margin – dipping below $90 per barrel – as fears of another recession have dramatically affected projected oil demand. Should the economy falter early in the new year, the sentiment is that energy consumption will be kept to a minimum, causing further price declines and adding to the pressure on producers.

One economic factor that some thought might have a positive effect on oil demand was a surprisingly strong GDP growth in the previous quarter. However, as the fiscal cliff looms, it appears to have had little impact.

Olivier Jakob, an analyst from Petromatrix in Switzerland, told the AP that the GDP growth is irrelevant, as the energy market is primarily effected by U.S. politics.

"This matters little in a market that is maintained hostage to the U.S. political gesticulations," Jakob said.

However, as the two sides work together in the next week and a half to get a deal done before the new year, oil companies must be prepared for any changes in such a sensitive market. Should demand increase in the early days of 2013, it would be wise to possess proper oilfield equipment to promote efficient extraction processes.