Most Popular
1. It’s a New Macro, the Gold Market Knows It, But Dead Men Walking Do Not (yet)- Gary_Tanashian
2.Stock Market Presidential Election Cycle Seasonal Trend Analysis - Nadeem_Walayat
3. Bitcoin S&P Pattern - Nadeem_Walayat
4.Nvidia Blow Off Top - Flying High like the Phoenix too Close to the Sun - Nadeem_Walayat
4.U.S. financial market’s “Weimar phase” impact to your fiat and digital assets - Raymond_Matison
5. How to Profit from the Global Warming ClImate Change Mega Death Trend - Part1 - Nadeem_Walayat
7.Bitcoin Gravy Train Trend Forecast 2024 - - Nadeem_Walayat
8.The Bond Trade and Interest Rates - Nadeem_Walayat
9.It’s Easy to Scream Stocks Bubble! - Stephen_McBride
10.Fed’s Next Intertest Rate Move might not align with popular consensus - Richard_Mills
Last 7 days
Global Warming ClImate Change Mega Death Trend - 8th Apr 24
Gold Is Rallying Again, But Silver Could Get REALLY Interesting - 8th Apr 24
Media Elite Belittle Inflation Struggles of Ordinary Americans - 8th Apr 24
Profit from the Roaring AI 2020's Tech Stocks Economic Boom - 8th Apr 24
Stock Market Election Year Five Nights at Freddy's - 7th Apr 24
It’s a New Macro, the Gold Market Knows It, But Dead Men Walking Do Not (yet)- 7th Apr 24
AI Revolution and NVDA: Why Tough Going May Be Ahead - 7th Apr 24
Hidden cost of US homeownership just saw its biggest spike in 5 years - 7th Apr 24
What Happens To Gold Price If The Fed Doesn’t Cut Rates? - 7th Apr 24
The Fed is becoming increasingly divided on interest rates - 7th Apr 24
The Evils of Paper Money Have no End - 7th Apr 24
Stock Market Presidential Election Cycle Seasonal Trend Analysis - 3rd Apr 24
Stock Market Presidential Election Cycle Seasonal Trend - 2nd Apr 24
Dow Stock Market Annual Percent Change Analysis 2024 - 2nd Apr 24
Bitcoin S&P Pattern - 31st Mar 24
S&P Stock Market Correlating Seasonal Swings - 31st Mar 24
S&P SEASONAL ANALYSIS - 31st Mar 24
Here's a Dirty Little Secret: Federal Reserve Monetary Policy Is Still Loose - 31st Mar 24
Tandem Chairman Paul Pester on Fintech, AI, and the Future of Banking in the UK - 31st Mar 24
Stock Market Volatility (VIX) - 25th Mar 24
Stock Market Investor Sentiment - 25th Mar 24
The Federal Reserve Didn't Do Anything But It Had Plenty to Say - 25th Mar 24

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

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

Commodities / Crude Oil Apr 14, 2017 - 09:52 PM GMT

By: OilPrice_Com

Commodities

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.

Link to original article: http://oilprice.com/Energy/Energy-General/Supply-Crunch-Or-Oil-Glut-Investment-Banks-Cant-Agree.html

By Tsvetana Paraskova for Oilprice.com

© 2017 Copyright OilPrice.com - All Rights Reserved
Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.

OilPrice.com Archive

© 2005-2022 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in