That’s being driven by pervasive supply shortages from the lack of investment that has continued since the 2014 collapse in oil prices and, more recently, reduced investment in shale oil production. In addition, demand growth has been triggered by a strong recovery in countries such as China, a big stimulus package
in the United States and global optimism about vaccines.
Nevertheless, this could be the last super cycle for oil because major economies appear committed to replacing fossil fuels
, and car manufacturers have responded by committing to replacing internal combustion engine vehicles with electric vehicles
. This shift will transform the oil market into one consistent with climate goals. But it also poses a risk of disorderly adjustment for economies dependent on oil, with far-reaching effects that in some cases could spill over their borders.
Even with relatively lower oil prices, extraction and exploration companies have been highly profitable. At the same time, perhaps in recognition of a less buoyant future, they have reduced their investment. Production in oil fields and the number of wells are declining, and reserve depletion is rapid. The drop in both capital expenditure and replacement of oil reserves has persisted since 2014.
Covid has exacerbated the investment decline. For example, shale oil output — which has a shorter production cycle and therefore is more sensitive to changes in investment — is now increasing by half a million barrels a year, compared with 2 million barrels a year before the onset of the pandemic…
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