OIL SUPPLY CRUNCH COMING! - Oil Prices January

Can Anything Stop The Current Bull Run In Oil?

U.S. West Texas Intermediate crude oil futures continued to move higher on Friday with last February’s high at $53.60 well within reach. Investors continue to look beyond rising coronavirus cases, instead choosing to focus on the prospect of lower supply after Saudi Arabia pledged to cut output in February and March. Also underpinning the crude oil market is this week’s reported drawdown in U.S. crude stockpiles although one could argue that a spike in gasoline supply may have been offsetting news.

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The Pandemic Could Lead To A Major Oil Supply Crunch

It may be counterintuitive to say that the oil demand crash and the resulting glut in 2020 could lead to an oil supply crunch in just a few years.

Yet, a growing number of experts and international agencies warn that the world could be headed for an oil shortage when oil demand finally recovers from the COVID-inflicted crisis in late 2022 or 2023.

Last year, the pandemic slashed global oil demand, which is not expected to return to pre-crisis levels for at least another year and a half. But the coronavirus also accelerated a structural decline in upstream oil investments as all E&P firms. Oil supermajors, U.S. shale producers, and national oil companies alike slashed capital expenditures in the wake of the price crash.

Investments in new oil supply have now slumped to a more-than-a-decade low. If the industry doesn’t raise upstream investments in coming years, the oil market could be headed to a supply crunch after oil global demand recovers, analysts and forecasters warn.

But 2020 investments hit a new low.

The International Energy Agency (IEA) expected that global investment in upstream oil and gas to crash 32 percent year over year to US$328 billion in 2020, after three consecutive years of investment growth. The expected rate of decline in 2020 investment was larger than the 25-26 percent decline in the 2015-2016 period, while the value of 2020 investments was down by around 60 percent from the peak of US$779 billion in 2014. The decline in investment in 2020 already takes an estimated 2.1 million barrels per day (bpd) away from anticipated oil supply in 2025, the IEA said. The IEA also warned that if investments were to stay at the 2020 levels over the next five years, it would reduce the previously expected level of oil supply in 2025 by nearly 9 million bpd.

Goldman Finds Unexpected Source Of Demand For 1 Million Bpd Of Oil

Having recently turned even more bullish on the oil market, bringing forward up its year-end $65 Brent price target to the summer on Monday, overnight Goldman's commodity team turned even more bullish on oil, "discovering" an unexpected source of oil demand in the near term, which could lead to even higher oil prices in coming days. Specifically, according to to Goldman's Damien Courvalin, global oil demand will be boosted by at least 1 million b/d in the coming weeks as cold weather spurs the use of diesel for power generation.