TLM

This week's spike in oil prices has been largely attributed to refining cutbacks, and not improving demand. With economies sputtering in the US, EU and China, oil demand is expected to fall. The sudden downturn could squeeze margins for several North American oil exploration companies, many of which boosted production earlier this year. The Paragon Report examines investing opportunities in the Oil & Gas Sector and provides equity research on Magnum Hunter Resources Corporation (NYSE: MHR) and Talisman Energy, Inc. (NYSE: TLM) (TSX: TLM). Access to the full company reports can be found at:

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Oil prices turned sharply higher this week after the EIA reported a surprise drop in US oil inventories. The figures don't necessarily signal higher crude demand, however, as the drop in inventory was partly due to refineries cutting back on run. The EIA says oil stocks fell 4.7 million barrels last week; a 700,000 increase was expected. Gasoline and distillate supplies also fell.

Global oil demand remains diminished, at best. The Paris-based International Energy agency reduced its forecast for global demand this year by about 60,000 barrels a day to an average of 89.5 million barrels a day. On Wednesday, Goldman Sachs said that financial stress in Europe will slow energy demand growth.

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OPEC sharply revised down its forecast for world oil demand for this year and expected consumption would remain weak in 2012, citing waning economic growth in key industrialized nations and a weak US driving season.

While oil demand may be on the downturn, North American oil production is skyrocketing. Oil output from shale prospects in unconventional sources from North Dakota to Texas could reach 1.5 million to 2 million barrels-per-day (bpd) in the coming five to seven years, twice as much as the 700,000 bpd currently produced in these places, Hess Corp executives told an IHS Herold energy conference.

Meanwhile in Canada, figures compiled by the Canadian Association of Petroleum Producers (CAPP) show that oil sands production is expected to double by 2020, to 3 million barrels a day, while conventional production slips slightly. That will give an estimated total production of 4.2 million barrels by the end of the decade.

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