(Energy and Capital) - It’s hard to be optimistic about the oil markets, but in true form, the Energy Information Agency (EIA) was able to do so last week.

The U.S. agency gave some rosy predictions, let’s take a quick look at what they’re expecting over the next two years. The EIA has always taken a cheery approach in its oil forecasts, so it wasn’t a surprise to see some wishful thinking on their part.

In a nutshell, the EIA is expecting oil markets to remain tight for the rest of 2008 before easing in 2009.

The reason?

Well, they’re offering several specific reasons for this:

• World oil consumption in 2008 will continue to grow faster than non-OPEC supply.
  
• This leaves OPEC production and inventories to offset the higher oil prices.
  
• Once 2009 comes around, non-OPEC production is expected to increase, alleviating some of the pressure on the markets.
  
• The EIA has projected the world’s production capacity to more than double by the end of 2009.

There’s a lot of wishful thinking on the EIA’s part. If oil has another year like 2007, then it will cost us well over the $150 a barrel.

This may not come as a shock, but we don’t have much faith in the oil markets easing. Not one bit and we would rather not get into a heated debate today over past shenanigans on OPEC’s part. That’s a rant we save until next time. Personally, the only OPEC country I feel has a chance of significantly raising output is Saudi Arabia.

Last week, Venezuela announced that OPEC doesn’t have to increase production because oil over $100 a barrel is, “a fair price.” We’ve heard this dozens of times from the oil cartel. First they were comfortable with $50 a barrel. When oil surpassed $70 a barrel OPEC refused to turn on the taps. Why should $100 a barrel be any different?

At what point will we ask, “Does OPEC even have the ability to turn on the taps?”

Non-OPEC production is much different. The EIA is projecting U.S. oil production to increase by 6.9% (approximately 350,000 barrels per day) in 2009. Okay, you can take a minute and laugh with me.

Our production peaked back in the 1970’s and has been declining ever since. To put that into perspective, we’re producing about as much oil as we did in 1947!

According to the EIA’s own data, crude oil production from U.S. fields hasn’t been performing too well since peaking. Within the last twenty years, care to guess how many times we’ve managed to raise production over the previous year?

Once.

That’s it, back in 1991.