According to today’s oil price report, the global economic weakness, slowing oil demand growth and growing shale oil production in the United States have made oil oversupply the focus of media and analysts this year. However, in a few years, the biggest concern in the oil market is likely to be a shortage of oil supply, which may push up oil prices.
Continued oversupply has delayed the implementation of the OPEC cut-off agreement until next year, replacing concerns about the looming global oil supply crisis with insufficient long-term investment in replenishing conventional oil reserves. Long-term oversupply and weak oil demand have depressed oil prices for most of this year. However, lower oil prices are also beginning to affect the pace of oil production in the United States, the world’s largest supplier of shale oil.
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Rob Pinkerton, author of Seeking Alpha, believes that U.S. oil production will increase in the next few years, but may peak in the early 1920s. By 2024, he said, most of the recoverable reserves will be extracted from U.S. shale reservoirs, leaving a gap in the global oil supply that only newly discovered conventional offshore resources can fill to some extent.
International organizations also set the peak of U.S. shale oil production in the 1920s, although most people predict it will be in the late 2020s. Specialized oil organizations, analysts and major state-owned oil companies in OPEC member countries have warned for years that the oil supply gap may widen in just a few years due to a reduction in investment following the sharp fall in oil prices in 2014.
The slowdown in U.S. shale oil production further illustrates that the global supply crunch will come in five years or less, although OPEC and its allies are currently trying to eliminate the global oversupply caused by worries about demand growth.
The International Energy Agency (IEA) recently lowered its demand growth forecast for 2019 by 100,000 barrels a day to 1.1 million barrels a day. The agency had previously found that demand growth from January to May was only 520,000 barrels a day, the lowest since 2008.
But the IEA also predicts that US production of dense oil will continue to rise by 2025, and says, “Since then, according to our current estimates of exploitable resources, production will begin to decline gradually.”
By the mid-1920s, there will be signs of energy exhaustion in many areas of the United States with higher productivity. “This means that the oil production of the rig will be lower in 2025 than it is now, so more wells need to be completed to maintain or increase production,” the IEA said.
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In the latest World Oil Outlook, OPEC expects non-OPEC oil supplies to peak at the end of the 1920s, as tight oil supplies in the United States are expected to peak.
On the other hand, global oil consumption will continue to grow, at least in the next 10 years, due to the demand of petrochemical, truck transport and aviation industries. In its World Energy Outlook released in November last year, the IEA said that the oil industry would need to double the number of approved conventional oil projects to meet the expected growth.
“Without such a rebound in investment, US shale production, already expanding at a record rate, will have to increase by more than 10 million barrels per day from today to 2025 — the equivalent of adding Russia’s global supply for seven years, which will be unprecedented,” the IEA said.
As the growth rate of shale oil production in the United States slows down, traditional oil investment is still much lower than five years ago, and the supply gap may emerge as early as the early 1920s.
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