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Former Shell CEO, John Hofmeister, recently predicted on CNBC that due to vast global capex cuts, in a few short years there won't even be enough oil to meet demand. Hofmeister's bold prediction revolves around the tens of billions of dollars that have been slashed from Producer budgets over the past several years. Exxon Mobile, for example, noted in March that it would cut capex to $23 billion, down 25% y/y. In total, capex estimates for global oil firms including Shell, Exxon Mobile, Chevron, Total, BP, Statoil and Eni equal $144.8 billion for 2016, down from $211.5 billion in 2013 (32% lower). Exacerbating reduced spending globally is increasing consumer demand for cheap oil, which currently sits at around 94 to 95 million barrels of oil a day. Hofmeister's comments also highlight the fact that an equilibrium will have to be established, which sees an oil price high enough that companies can invest and can grow their supply. Should supply growth remain at current levels, and global oil demand continue to rise (particular in China and India), Hofmeister's predictions will likely ring true leading to significantly higher oil prices in the not to distant future.
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Oil prices rose 3% on Thursday as a massive wildfire near Canada's oil sands region and escalating tensions in Libya stoked investor concern over a near-term supply shortage. Interestingly, over the past year the market has not priced in any supply disruptions (given the ongoing market oversupply), however that appears to be changing. In Canada, wildfires caused the evacuation of 88,000 people in Fort McMurray and numerous pipelines in the region have been shut in disrupting output at several facilities. In Libya, the country's already crippled oil production remains at risk of further disruption from a stand-off between eastern and western political factions. Overall, unplanned outages within OPEC, including Libya, stood above 2 million boe/d (the highest in five years). The events in Canada and Libya highlight what has turned out to be a key feature in 2016, which is a sequence of unexpected supply disruptions supporting oil prices. Overall, tightening market fundamentals continue to point to a potential global oil supply deficit as early as Q3/16.
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Jason SawatzkyA Canadian Energy expert Archives
October 2020
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