The International Energy Agency (IEA) released its Oil Market Report this week. The study showed crude prices falling by US $30/bbl from their mid-July high of $147/bbl. Despite the recent shut-down of the Baku-Tblisi-Ceyhan (BTC) pipeline, and the recent military clash in the Caucasus, oil price remains relatively unaffected.

Oil stocks fell by 15.3 million bbl in June among industrialized countries. Data for July shows that the United States, Japan, and the EU-16 have stocked 30 million bbl. Additionally, global oil supply increased by 890,000 b/d in July totaling 87.9 million b/d. Non-OPEC growth is also increasing with an average output of 665,000 b/d expected in 2009 compared to 425,000 b/d in 2007.

The study also showed an increase for OPEC supplies. In July, oil supplies rose by 145,000 b/d totaling 32.8 million b/d. OPEC has an effective spare capacity of 1.5 million b/d, but is expected to rise through 2009.

Global oil demand is expected to rise slightly in 2009 by an additional 70,000 b/d totaling 87.8 million b/d, compared to 86.9 million b/d for 2008. Regionally, demand is changing in some interesting ways.

The Financial Times reports that this fall represents a “dip rather than decline.” Even so, it is evident that high prices force consumers to find alternatives, many of which become permanent.

The Times attributes the drastic reduction in oil price to the “deepening gloom about the state of the U.S. economy.” A slower economy equals less demand. Is this inherently bad? Maybe, but there are benefits for those who survive the dip to arrive in an improved economy with an adjusted need to consume products and services related to petroleum.

In the U.S., motorists are driving less, airlines are trimming flight schedules, and the development of energy efficient vehicles and machinery has become a top priority for manufacturing companies.

The Times recalls the 1980s when, in 1985, U.S. oil consumption had fallen 19% from its 1980 peak. Additionally, Europe and the United States consumed almost three quarters of the world’s oil production in 1978. These same regions consumed less than half of total production in 2007.

Rapid growth in countries like India and China has waned slightly, but will continue to expand. “High prices are beginning to play a central role in determining demand, at least for the OECD countries,” the IEA said.

More importantly, the IEA noted that a portion of the demand in wealthy countries will be lost for good. “Even if retail prices ease, it seems unlikely that motorists (in the U.S.) who have purchased smaller cars will revert to gas-guzzling vehicles,” the IEA said.

It’s safe to say the global demand will continue to encourage further exploration to substantiate the world’s oil and gas reserves. The good news is that higher prices may represent a paradigm shift for you and your neighbors.