Oil markets could experience more intense price volatility in the coming years because of insufficient investment in new production, according to the head of the International Energy Agency’s oil market and industry unit, Neil Atkinson.
Speaking at a conference in Manama, Bahrain, Atkinson noted that investment is returning to the oil industry too slowly to eliminate the risk of tighter supply that would, in turn, cause price volatility even in the context of slowing global oil demand growth. Over the next five years, it is not impossible to see a return to the high oil prices from a decade ago, Atkinson said.
In its latest Oil Market Report, released last week, the IEA said crude oil demand had grown by 2.3 percent on an annual basis in the second quarter, which prompted an upward revision of the overall growth rate for 2017 to 1.6 million bpd. The revision boosted oil prices, with Brent once again above US$55 a barrel for the first time in about five months.
Atkinson noted at the Manama conference that although over the medium term the rate of demand growth will slow, it may do so from a higher point than previously forecast, in tune with the new demand growth revision. What’s more, over the longer term, to 2040, the IEA forecast the share of oil in the global energy mix will decline only slightly, from 33 percent in 2015 to 31 percent in 2040, which means stable growth in demand as part of the growth in wider energy demand.
The problem with new investments, however, remains. Bahrain’s oil minister, speaking at the same event as the IEA official, said that although prices have improved lately, they are not high enough to motivate sufficient investment in new production. Bahrain’s top oil man is not the only one warning about a possible supply crunch, but given these officials’ vested interest in the effect of supply crunches on prices, their comments are better taken with a pinch of salt.
By Irina Slav for Oilprice.com
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