IEA Highlights Potential Oil Price Shock as 'Historic' Spending Cuts Continue

At the recent 2016 Singapore International Energy Conference (SIEW), representatives from the IEA highlighted the potential for an oil price shock in the not-too-distant future, as the oil price bust has hammered investment in future supply, Neil Atkinson, head of the IEA’s Oil Industry and Markets Division, noted that ~$300 billion is needed to sustain the current level of global oil production. However, nations including the U.S., Canada, Brazil, and Mexico are facing difficulty in keeping up investments. Notably, companies from ConocoPhillips to Chevron Corp. and BP Plc have now canceled more than $100 billion in oil investments. Looking forward, the IEA expects that supply and demand will move closer to balance in the second half of 2016. However, if investment doesn’t resume in 2017 and 2018, we could see a significant spike in oil prices as oil supply can’t meet demand. Further, geopolitical events in countries such as Iraq, Nigeria and Venezuela could further exacerbate the supply shortage. The IEA's analysis ultimately shows just how tightly balanced the oil markets are, as a year or two of under investment in a highly capital intensive business, can drastically swing the market. Should oil investments remain muted through 2017, we could potentially be looking at $100 Bbl once again in the next 2-3 years.