Is A Supply Crunch In Oil Markets Inevitable?
The oil industry is more profitable than at any time in years, yet the industry could fail to supply enough oil to meet global demand in just a few years’ time.
A series of second quarter earnings reports over the past two weeks has revealed surging profits across the oil industry, with some companies posting earnings that are double or triple from a year earlier. But even though they are flush with cash, the industry has not returned to the profligate spending levels that were common prior to the 2014 market downturn.
Depending on one’s perspective, that could be a good thing or a bad thing. According to Carbon Tracker, the oil industry has trillions of dollars of projects in the pipeline that will become financial risks as governments around the world seek to address climate change. In essence, lots of oil and gas reserves will remain in the ground due to forthcoming taxes, regulation or simply demand destruction as alternatives take hold. Against this backdrop, a shortfall in spending is not such a bad thing.
On the other hand, energy agencies and forecasters, such as the International Energy Agency, have warned that the current pace of spending by the global oil industry is insufficient.
The downturn that began in 2014 led to a severe cutback in spending on exploration and development. Spending plunged by 25 percent in 2015, followed by another 26 percent decline in 2016. Since then upstream expenditures have bottomed out, rebounding 4 percent last year. The industry is only track to increase spending by another modest 5 percent in 2018. But there is little sign that the industry will return to spending at the same rate that it did prior to the downturn.
(Click to enlarge)
…click on the above link to read the rest of the article…
