The oil market is resembling the 1980s as the International Energy Agency (IEA) forecasts lower investments and no short-term price recovery.
The IEA released its five-year outlook that forecasts 4.1 million barrels per day added to the global oil supply from 2015 to 2021, which is more than a 60 per cent decrease from the previous outlook from 2009 to 2015.
This has signalled to a fall in capital expenditures with a 17 per cent drop this year on top of last year’s 24 per cent cut. This is the first time in three decades that the industry investments have shrunk for two consecutive years.
“It is easy for consumers to be lulled into complacency by ample stocks and low prices today, but they should heed the writing on the wall: the historic investment cuts we are seeing raise the odds of unpleasant oil security surprises in the not-too-distant-future,” said Fatih Birol, the IEA’s executive director, launching the report at IHS CeraWeek, the energy conference held annually in Houston.
While supply may decrease as a result of declining investments, the US shale revolution is not expected to dry up any time soon. The IEA suggests a short-term reduction, with a revival only likely to come from greater operational efficiencies.
“But at the risk of tempting fate, we must say that today’s oil market conditions do not suggest that prices can recover sharply in the immediate future – unless, of course, there is a major geopolitical event,” said the IEA.
Sebastien Henin, the senior vice president of Abu Dhabi-based advisory firm The National Investor, said the report stated the obvious. “It’s nothing new. Demand is still robust. The oversupply is here for the entire year and the market should be balanced next year,” he said.
lgraves@thenational.ae
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