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Supply Crunch Or Oil Glut: Investment Banks Can’t Agree

by Tsvetana Paraskova for

In recent years, U.S. shale has thrown in another unknown in the mix of factors driving the price of oil. This year, shale output forecasts combine with OPEC’s production cuts, geopolitical factors, and unexpected outages to further complicate supply/demand and oil price forecasts by Wall Street’s major investment banks.

The biggest banks remain bullish on oil prices, expecting moderate price gains by the end of the year, even after last month WTI prices dropped below $50 for a couple of weeks.

But analyst projections about oil global supply and demand are increasingly diverging, because expectations of the combined effects of OPEC’s cuts, U.S. shale production, new oil discoveries, and new project start-ups also differ a lot.

Goldman Sachs, for example, expects a “material oversupply” in 2018-2019, due to the increase in mega projects production in 2017-19 as a result of the record spending in those projects between 2011 and 2013. Short-cycle shale output will also add to the glut, says Goldman, projecting an additional 1 million bpd to global supply by 2018-2019 coming from the mega projects sanctioned before the oil price crash and from U.S. shale output.

Morgan Stanley, however, begs to differ, and has recently said that “by 2020, we estimate that [around] 1.5 million bpd of demand will need to come from projects that have not been sanctioned yet, but that have break-even oil prices of $70-75 a barrel.

UBS, for its part, expects a 4-million-bpd supply gap by 2020.

Beyond 2017, the impact of a collapse in longer-cycle conventional investment over 2014-16 begins to be felt. 2015 saw just six major upstream projects totaling [some] 0.6 million bpd ... versus the 3-4 million bpd average, and 2016 has seen just one major liquids project sanctioned,” UBS strategist Jon Rigby told Reuters.

Analysts and industry bodies warn of a supply crunch, especially after 2020, when the effect of the significantly lowered investments in conventional projects during the downturn will show. The International Energy Agency (IEA) sees a shortage in oil supply after 2020, “unless new projects are approved soon”. According to the IEA, supply could lag demand in a few years, which could lead to a surge in oil prices.

In the next few years, oil supply is growing in the United States, Canada, Brazil and elsewhere but this growth could stall by 2020 if the record two-year investment slump of 2015 and 2016 is not reversed. While investments in the US shale play are picking up strongly, early indications of global spending for 2017 are not encouraging,” the IEA said in a report last month.

According to Wood Mackenzie, although projects around the world slated for final investment decisions (FIDs) will double this year compared with 2016, and prospects for 2017 are largely looking good, “the longer-term deepwater pipeline is more challenged.”

The oil price slump has not only deferred some investment decisions, it has also forced companies to scale back exploration spending for conventional oil.

Last year, total global discovered volumes of oil and gas combined hit their lowest since the 1940s, according to Rystad Energy. The Oslo-based consultancy sees exploration activity slowly picking up from 2018.

Although last year’s low discovery volumes won’t have an immediate effect on global supply, they could influence supply a decade or so into the future because of the long lead-time in sanctioning conventional oil developments and actual production start-ups.

Meanwhile, short-cycle U.S. shale is now more flexible in scaling back or resuming production, depending on the price of oil and well economics. This adds another conundrum for investment banks in predicting oil prices—how fast U.S. supply could grow and how many barrels it could add on the global oil market.

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These simple forecasts written by peoples earning 200 000$ 0r more per years have no value whatsoever. First consumption can severely decrease by higher mpg engine everywhere and if they start commercialising good battery and also if they start commercialising solar synthetic fuels. I thus told you more datas then this entire article and on top of that it is free.

Stop any state sunsidies toward madscientists and crooked journalists. Let the works be done by free bloggers.


OPEC is reducing supply in small ways, they got used to the huge money at $100+ per barrel, asking them to reduce production at $50 per barrel does not set well.

Henry Gibson

Hydraulic hybrid Automobiles have demonstrated half the fuel use in city driving. More years of optimization can reduce this even more including no crankshaft hydraulic engine pumps that only have a moving piston when energy can be used as in the INNAS Chiron engine. Imagine an automobile with one cylinder and two opposing pistons for low vibrations. One such car was built that used an exhaust turbine to power the wheels instead of hydraulics. See it on UTUBE.

Imported oil will not be needed in the US with a fuel reduction of half. California is misleading the rest of the US by not requiring the use of hydraulic hybrids with their cheaper engines, pumps and motors. This would save more CO2 release more cheaply than any other action in the automotive world. ..HG..


@Henry Gibson:

Burning fossil fuels in combustion engines of any configuration is an obsolete technology. Replacing Gassers in all segments is now possible and we are only waiting on the vehicle makers to get off the dime. Not depending on oil will stabilize energy prices and will help stabilize the relations between nations...there will no longer be a need to fight wars over will all be generated and stored locally by the wind, sun, water and batteries.

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