New sources of oil will prevent a supply crunch in the next few years, according to the CEO of ExxonMobil, who also added that it was unlikely that output from the United States would see a decrease anytime soon.
Exxon’s Rex Tillerson made the bearish comments about the future of the oil market’s supply-side fundamentals on Wednesday.
"I don't necessarily have the view that we are setting ourselves up for a big crunch within the next 3, 4, 5 years," Tillerson told the Oil & Money conference, negating other investors’ views that the sizeable drop in investments over the past two years would cause the glut to reverse itself and feed a supply shortage.
U.S. drilling activity, which has seen dramatic cuts over the past two years, will rebound even if the market recovers slowly, the CEO said.
Other oil executives don’t seem to share the same point of view.
Statoil’s Chief Financial Officer Hans Jakob Hegge was quoted in May, saying that “It might be that we see quite a dramatic reduction in replacing the capacity and of course that will have an impact, eventually, on price.”. Hegge commented on the fact that global oil and gas capex has fallen for two years in a row and might continue to fall in 2017.
Washington based think-tank SAFE expects that global oil supply could fall up to 4 million barrels per day by 2018 as a result of recent capex cuts.
The impact of the supply crunch could, however, be softened by the recent pick up in shale drilling.
Last Friday’s Baker Hughes report showed a sixteen week run of no-decline in the number of active oil rigs. The oil rig count now stands at an eight-month high at 432 sites – but still 163 rigs lower than the 595 figure that we saw one year ago.
U.S. oil supplies entered global markets in December 2015 when the government lifted restrictions on crude exports. In June, American oil exports reached a 96-year high, with a majority of the outbound goods headed to Canada.
The ongoing oil price crisis was caused by the oversupply of oil, and has continued largely unchecked in the wake of massive overproduction as countries vie to retain market share.
The Organization of Petroleum Exporting Countries (OPEC) will meet in Austria next month to finalize the terms of a freeze deal, though several countries – Iran, Nigeria and Libya – are expected to be exempt from the agreement, leaving more room for the production cap to fall short of expectations.
By Zainab Calcuttawala for Oilprice.com
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