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Singapore - Energy producers clobbered by the worst price slump in decades have cut billions of dollars in spending, raising the potential for oil-supply shocks in the future, according to the International Energy Agency (IEA).
“Historic” investment cuts taking place now increase the possibility of oil-security surprises in the “not-too-distant” future, Neil Atkinson, head of the IEA’s Oil Industry and Markets Division, said in Singapore on Wednesday. About $300bn is needed to sustain the current level of production, and nations including the US, Canada, Brazil, and Mexico are facing difficulty in keeping up investments, he said.
“We need a lot of investments just to stand still. There’s danger as we are reaching a point where we are barely investing upstream,” Atkinson said at the launch event of SIEW 2016. “If investment doesn’t resume in 2017 and 2018, we can see a spike in oil prices as oil supply can’t meet demand.”
Companies from ConocoPhillips to Chevron and BP have cancelled more than $100bn in investments, laid off tens of thousands of workers, slashed dividends and sold assets as oil sank below $30 a barrel to a 12-year low. With crude rebounding since mid-February to near $41, Atkinson said the worst may be over for prices as they have a floor “for the time being.”
The Organisation of Petroleum Exporting Countries (OPEC) and other producers including Russia plan to meet in Doha next month to discuss limiting output to reduce a global oversupply.
No impact
“The meeting may or may not take place,” said Atkinson. It’s seen as a gesture to show that there is stability and the impact it will have on actual supply structure will be “none whatsoever,” he said.
West Texas Intermediate oil for May delivery lost as much as 52 cents to $40.93 a barrel on the New York Mercantile Exchange and was at $40.95 at 1:40 p.m. Singapore time. Prices, which have declined for two years, may have passed their lowest point as shrinking supplies outside OPEC and disruptions inside the group erode the global surplus, the IEA said in its monthly market report on March 11.
US crude stockpiles are at 523.2 million barrels, the highest level since 1930, according to data from the Energy Information Administration. Supply and demand will move closer to balance in the second half of this year, said Atkinson.
The market will be balanced in 2017 and stockpiles will fall from 2018 to 2021, he said. Global demand will grow 1.2% a year in the five years to 2021, compared with 1.7% annual growth in 2009 to 2015, according to Atkinson.
