It’s possible we could be headed for a shortfall in global oil supply as soon as next year – pretty remarkable considering where oil demand was last spring, with economies slowing under the weight of the pandemic.
Based on projected rising demand, the natural production decline from existing wells and decreases in drilling activity and industry investment – especially in the U.S. – the world’s oil needs could outpace production in 2022. An undersupply potentially could put upward pressure on costs, impacting consumers, manufacturers and, generally, any process that utilizes oil.
API’s outlook has maintained that global oil markets would improve in tandem with the economy, but uncertainties remain about the timing and extent to which the U.S. could participate in that recovery. As a primary source of U.S. petroleum data and analysis, API is able to shed some light on recent developments. Consider:
- U.S. and global oil demand through mid-February 2021 nearly returned to pre-COVID-19 levels, mainly due to strong refining & petrochemical needs as well as seasonal winter heating fuels demand.
- By all indications, global oil demand exceeded supply and supported prices since the third quarter of 2020.
- Current official global oil demand projections through 2022 call for record, two-year demand growth that could require virtually all of the world’s oil spare production capacity.
- Additionally, oil production declines naturally and that production must be replaced. Combine that expected decline with projected demand growth, and the world could require more than 14 mb/d of new production by 2022.
- Global oil drilling activity and capital investments have remained historically weak, suggesting a potential supply gap.
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