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The ever-increasing oil price is not likely to result in increased output, with most suppliers experiencing flat output and Russian production in steep decline.
Having reached yet another record high of over USD 117 a barrel this morning, experts believe the price has not yet hit its peak and will continue rising. BP Capital founder T. Boone Pickens has reportedly said he did not expect supply to exceed 85 million barrels a day and has bough oil futures on the expectation that the price will rise even higher owing to contracting reserves and many existing wells being depleted.
The International Energy Agency and Barclays Capital have both expressed concern at both OPEC and non-OPEC producers' continuing capacity to supply increasing world supply, especially from China and India.
Barclays Capital said it expected non-OPEC supply to be "at best very weak in 2008" and that it expected supply to actually fall, despite daily record high prices. OPEC producers do not have spare capacity to make up for the decline, which are thought to be worst in the North Sea and Mexico.
Russia, the second largest oil producer in the world after Saudi Arabia, has been producing less and less oil, and has seen a sharp drop in output since 2004, with a 7 per cent decline last year. Barclays Capital expects Russia's supply reduction to have significant ramifications in the global oil market.
While some analysts blame the declines on the Russian government's high taxes and dislike of foreign investment, oil reserves could also be becoming depleted following decades of wasteful and inefficient oil extraction during the Soviet era.
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