The International Energy Agency forecasts oil price increase and oil shortage by 2020. The agency attributes this to lean investments in the energy sector by oil firms over the last couple of years. It said this could lead to decreased supply and increased demand in the next five years, triggering a spike in oil prices.
According to the Oil 2017 report, the market will balance in the next three years. However, the decreased production capacity will result in a supply cut hence increased demand by 2022. Despite the slow production growth since the start of 2017, Canada, the U.S and Brazil still take the lead in bettering the growth in oil production.
Upstream projects in 2016 saw oil companies spend $450 billion globally; however, this is about 25% less than what’s needed to satisfy the increasing demand. However, this is expected to change in 2017. Depending on costs, shale oil production in the U.S is expected to lead in the provision of new oil supplies.
IEA projects about 1.4 million barrels production growth daily at $60 for every barrel by 2022. This could grow further to 3 million barrels production growth daily for the next five years at $80 for each barrel. However, by 2020, the price per barrel could drop to $50.
On the other hand, the demand for oil is projected to grow by 7.3 million barrels daily by 2022, hitting the 104 million barrels mark. Oil companies can also expect a tight market with most growth emanating from Asia and developing countries across the globe. The demand for oil in India is also expected to surpass that of China.
According to the Executive Director of IEA, Dr. Fatih Birol, “We’ve began to see supply growth in the U.S as we usher in the second wave of growth in the industry. How big this growth gets will totally depend on the direction prices will take. However, this isn’t the time for complacency. A peak in demand for oil won’t be anytime soon. There’s need for a sharp rebound in global investments for prices to stabilize.”
A survey was recently released by Platts, indicating that the agreement made by OPEC countries as 2016 ended to hit 1.2 million barrels daily in combined cuts increased to 98.5% from 91% in January. Although countries such as the UAE, Venezuela and Iraq, among other OPEC countries haven’t reached their targets, Saudi Arabia is said to have surpassed its production target.
Since investments in Iran have been impacted by sanctions made by the U.S, it’s less likely to reduce its production, not to mention the fact that it hasn’t released details about the new contract it recently signed for petroleum production.
Due to high production, reduced invetsments and a flooded oil market, oil prices had a dip as low as $27 for every barrel in February 2016. IEA projected then that the prices wouldn’t improve significantly in the short term. Actually, the prices were worse in 2014 and 2015, with up to 36% in losses before increasing to 27% in 2016.
However, things are expected to change for the energy sector in 2017. Even if by a small leap, the industry is forecasted to realize price increases over the next five years. Ensco PLC, Occidental Petroleum Corp and Chesapeake Energy Corp are some oil companies that investors have been keen on in the 4th quarter.
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