The oil shortage might occur in 2020 – forecast of prices for the next 5 years

снижение добычи нефти

Investors look forward to the OPEC report on the actual decrease in oil production, and Russia begins to consider the potential revenues from future price increases. Even the current equilibrium price of 55 USD already allows Russia to begin to strengthen the ruble and to create reserves in case of new emergency situation. However, for Russia the reduce of oil production is unprofitable, but the country is not included in OPEC, and therefore the ” Sayin’ ain’t doin'”.

The situation with reports of OPEC is nothing more than a numbers game, but speculative trading capital will be happy to take any signs of decline in oil production. The question arises: what will it take for  Saudi Arabia, Kuwait, or Qatar for personal reasons in the future to provoke volatility in the oil market? Only fundamental factor can resist manipulation and it already did, and it was still faster than analysts had predicted.

  • In 2016, the oil and gas exploration fell to 70-year lows. If the situation does not change, the shortage of oil supply to the world market will begin in 2020.

The decrease in oil production is the only solution that will be able to solve the problem of exploration of wells

First the problem of the natural depletion of oil fields will feel the largest corporations — Exxon Mobil and Shell. Companies had drastically reduced investment in the development, while maintaining the level of production in order to obtain structural damages. The decrease in oil production by OPEC countries will not solve the problem of corporations, but the rise in prices at least will allow companies to review their investment strategy.

The problem is that investments in geological exploration were not performed  for over 2 years and their potential recovery is possible not earlier than in 2018. Since the investments might take several years before it found a new field and mastered the production. On average for 2016, the company reduced investment in the development of wells up to 40 billion USD, because of that the number of drilled wells were 40% less than in 2014 (when it started to collapse).

world oil shortage

For now, corporations are accountable only to a few cases of explorations:

  • Exxon Mobil in October, reported about deep-sea deposits with a volume of 0.5-1 billion barrels. However, the cost of production has not been announced;
  • Statoil in January 2017, reported about new field on the shelf a volume of 50-80 million barrels. Although the figure seems small, the company noted that we are talking about a whole area where new deposits of oil and gas can be found.

The decline in oil production by OPEC will not affect the statistics of resource constraints, since 1-1,5 million barrels a day is too small figure compared to the world consumption. But this will be able to spur the growth of prices, whereby corporations will be able to invest more in the development of wells. However, it will not save from the coming oil shortage in 2020. And if in the nearest future the cost of investment will not increase, the shortage of oil due to the growth in global demand could drag on for 2020-2023 years, which will push prices up in a natural way.

About the author

JOIN THE DISCUSSION