• 4 minutes Pompeo: Aramco Attacks Are An "Act Of War" By Iran
  • 7 minutes Who Really Benefits From The "Iran Attacked Saudi Arabia" Narrative?
  • 11 minutes Trump Will Win In 2020
  • 15 minutes Experts review Saudi damage photos. Say Said is need to do a lot of explaining.
  • 1 hour Ethanol is the SAVIOR of the Oil Industry, Convenience Store Industry, Automotive Supply Chain Industry and Much More!
  • 2 hours Let's shut down dissent like The Conversation in Australia
  • 10 hours One of the fire satellite pictures showed what look like the fire hit outside the main oil complex. Like it hit storage or pipeline facility. Not big deal.
  • 8 hours Saudi State-of-Art Defense System looking the wrong way. MBS must fire Defense Minister. Oh, MBS is Defense Minister. Forget about it.
  • 17 hours Donald Trump Proposes Harnessing Liberal Tears To Provide Clean Energy
  • 16 hours Saudis Buying Oil From Iraq
  • 9 hours Trump Accidentally Discusses Technology Used In The Border Wall
  • 6 hours Ethanol, the Perfect Home Remedy for A Saudi Oil Fever
  • 7 hours Hong Kong protesters appeal to Trump for support.
  • 47 mins Collateral Damage: Saudi Disruption Leaves Canada's Biggest Refinery Vulnerable
  • 24 hours Drone attacks cause fire at two Saudi Aramco facilities, blaze now under control
  • 17 hours Saudis Confirm a Cruise Missile from Iranian Origin
  • 36 mins Iran in the world market
Tsvetana Paraskova

Tsvetana Paraskova

Tsvetana is a writer for Oilprice.com with over a decade of experience writing for news outlets such as iNVEZZ and SeeNews. 

More Info

Premium Content

Oil Markets Face Serious Risk Of New Supply Crunch

Weakening global economy and slowing oil demand growth, coupled with growing U.S. shale production, have pushed the oil glut narrative to the top of the media and analyst attention this year.

In a few years’ time, however, the top concern on the oil market could very well be insufficient oil supply that could drive prices higher.

The persistent oversupply led to OPEC rolling over the production cuts into next year and replaced concerns about a looming global oil supply crunch due to chronic underinvestment in replenishing conventional oil reserves.

The stubborn oversupply and faltering demand have depressed oil prices for most of this year. The lower oil prices, however, have also started to challenge the growth pace of the largest source of oil supply increase in the world—U.S. shale.

American oil production is set to increase over the next few years, but it could peak in the early 2020s, Seeking Alpha contributor Rob Pinkerton argues. According to oil industry professional Pinkerton, U.S. shale will have drilled out most of the recoverable reserves by 2024, leaving a gap in global oil supply that only newly discovered conventional offshore resources can—to some extent—fill in.

International organizations also put the peak of U.S. shale oil production at some point in the 2020s—although most predict it will be the late 2020s. Organizations, analysts, and major national oil companies of OPEC nations have been warning for a few years that a gap in supply could open up in just a few years as a result of low investments after the oil price crash of 2014.

The slowdown of U.S. shale production growth adds to the narrative that a global supply crunch is coming in half a decade or even sooner, even if OPEC and allies are currently trying to eliminate a global glut amid demand growth concerns.  

Related: The Biggest Tech Play Of The Year Is Flying Under Wall Street’s Radar

The International Energy Agency (IEA) has recently revised its demand growth estimates for 2019, down by 100,000 bpd to 1.1 million bpd, after seeing that between January and May demand growth was just 520,000 bpd, the lowest increase for the period since 2008.    

But the IEA also expects U.S. tight oil production to continue rising through 2025, and “Thereafter, with our current estimate for recoverable resources, production starts to fall gradually.”

Many of the most productive areas in the U.S. will show signs of depletion by the mid-2020s. “This means the average well drilled in 2025 is less productive than today and so a larger number of wells need to be completed to maintain or increase production,” the IEA says.

In its latest World Oil Outlook, OPEC sees non-OPEC supply peaking in the late 2020s, mainly because of expected U.S. tight oil supply peak.

On the other hand, global oil consumption will continue to increase, at least in the next decade, due to demand from petrochemicals, trucking, and aviation. The oil industry will need to double the number of approved conventional oil projects in order to meet the expected growth, the IEA said in its latest World Energy Outlook from November last year.

“Without such a pick-up in investment, US shale production, which has already been expanding at record pace, would have to add more than 10 million barrels a day from today to 2025, the equivalent of adding another Russia to global supply in seven years – which would be an historically unprecedented feat,” the Paris-based agency noted.

But with U.S. shale growth slowing down, and conventional oil investment still much lower than five years ago, a supply gap could open as soon as in the early 2020s. Related: Is OPEC’s No.2 Finally Cutting Production?

Despite an uptick in global spending on oil and gas development, the upstream recovery is much slower and shallower than in previous cycles, with current investment levels insufficient to meet future demand growth, energy consultancy Wood Mackenzie said in October last year.

The IEA has estimated that global upstream investment would reach US$505 billion this year, up by 6 percent in nominal terms from 2018. Yet, three years of modestly higher spending still leave this figure nearly US$300 billion lower than the peak reached in 2014, the agency says in its World Energy Investment 2019 report.

Exploration investment may also be turning a corner—after many years of decline, investment in exploration is set to rise by 18 percent to US$60 billion in 2019, according to the IEA, which noted that despite the expected rise in exploration investment, the share of exploration in total upstream investment remains at almost half the level in 2010.

Despite the current global oversupply, an oil shortage may be looming—the result of slowing shale growth and subdued investment in conventional oil resources.

By Tsvetana Paraskova for Oilprice.com

More Top Reads From Oilprice.com:

Download The Free Oilprice App Today

Back to homepage

Leave a comment
  • James Hilden-Minton on September 10 2019 said:
    When supply fails to grow because oil prices remain too low, that's called peak demand. It doesn't come by consumption falling, but by the oil price being chronically inadequate to grow supply. After that consumption falls too. Evs (both light duty and heavy duty) along with renewables are quite adequate to keep prices from being too high for long.

Leave a comment

Oilprice - The No. 1 Source for Oil & Energy News
Download on the App Store Get it on Google Play