(EnergyAsia, May 26 2010, Thursday) — Europe’s wobbly economies are having a bigger negative impact on the oil markets than the massive loss of crude oil from a ruptured BP well in the Gulf of Mexico.

The International Energy Agency has cut its projection for oil demand this year by 220,000 barrels a day to 86.4 million as it warned of growing glut in light of Europe’s economic woes. Oil prices could sink further if Europe’s demand continues to decline.

In the long term, however, there is the potential for much higher oil prices if the US and other countries start to impose tougher regulations on offshore exploration and production.

According to one estimate, new regulations and compliance could raise the cost of finding and developing a barrel of oil in deep water by up to 15%.

Deep-water oil production in the US now accounts for only 2% of world production, and was expected to rise with more companies investing heavily to find and develop oil in frontier areas.