Shortage of oil is now likely

Cost cutting in the service industry and reduced investments by the oil companies may soon result in a shortage of oil, says Rystad Energy.

While the global market is currently oversupplied with crude, Rystad Energy believes this could be turned upside down over the next few years.
While the oil industry needs to replace the current production of 34 billion barrels of crude every year, investment decisions for only 8 billion barrels were made in 2015.
“Oil prices continue to fall after OPEC failed to reach an agreement on output targets and decided to remove its obsolete output ceiling last week. This decision occurs at a time when oil companies are in the process of taking final decisions on spending programs for next year,” says Jarand Rystad, Managing Partner at Rystad Energy.

Reduced spending

E&P spending has been taken down by USD 250 billion in 2015 versus 2014 and Rystad Energy forecasts it to reduce further by USD 70 billion in 2016. Additional spending cuts in 2016 could occur with the current post-OPEC meeting oil price decline.
“We see that for most new developments oil prices are below life cycle costs. As oil companies need to pay dividends and have incompressible taxes and royalties, the majority of upstream players are destroying value as we speak and do whatever they can to cut costs.»

New increase in oil prices

«As a result, billions of barrels of crude are not being matured while global consumption growth is still very robust. Thus, a new shortage of crude is likely to come a few years down the road,»says Rystad.
When this happens, the oil service capacity will not be there to support the growth at the pace needed. There is then a risk that we will face a new era of steep cost inflation which again will drive up oil prices too much and negatively impact the global economy,” says Jarand Rystad.