KUALA LUMPUR (Jan 6): Incredible as it may seem, in the present scenario of tumbling oil prices amid a supply glut, current low oil prices may well be a prelude to global oil shortage as early as 2016, according to Oilprice.com.
In an opinion piece Dec 30, Energy Prospectus Group president Dan Steffens said: “For a commodity as critical to our standard of living as oil is, it only takes a small shortage to drive up the price.”
Currently there is just 2 percent more crude oil supply than demand and the price of gasoline is under US$2 per gallon in Texas.
“If oil supply falls too far, we could see gasoline prices doubling within 18 months, he said.
Steffens said that to put this in perspective, the world currently consumes about 93.5 million barrels per day of liquid fuels, with another 17 per cent coming from natural gas liquids ("NGLs") and biofuels.
Since 2005, only North America had been able to add meaningful crude oil supply. Outside of Canada and the United States (including the Gulf of Mexico), the rest of the world's crude oil production netted to a decline of a million barrels per day from December, 2010 to December, 2013.
More than half of the OPEC nations were now in decline, he said.
“I believe the current low crude oil price could be an overkill and result in the next "Energy Crisis" by early 2016,” he said.
Steffens said on Thanksgiving Day, 2014 Saudi Arabia decided to maintain its crude oil output of about 9.5 million barrels per day despite global over supply of about 1.5 million barrels per day, and the severe financial pain to many other OPEC nations.
“By now you are all aware this has caused a sharp drop in global crude oil prices and has a dark cloud hanging over the energy sector.
“I believe this will be a short-lived dip in the long history of crude oil price cycles. Oil prices have always bounced back and this is not going to be an exception,” he said.
Steffens said the Bears’ opinion that oil prices would go lower during the first half of 2015 is based on declining demand in the first half of every year.
“Since most humans live in the northern hemisphere, weather does have an impact on demand. I agree that this fact will play a part in keeping oil prices depressed for the next few months.
“However, low gasoline prices in the U.S. are certain to play a part in the fuel demand outlook for this year's vacation driving season,” he said.
Steffens said his forecast models for 2015 assumed that crude oil prices would remain depressed during the first quarter, then slowly ramp up and accelerate as next winter approaches.
“I believe that by December, we will see a much tighter oil market and significantly higher prices.
“In a December 24, 2014 article in The National, Steven Kopits managing director of Princeton Energy Advisors said, "In permitting low oil prices, the Saudis seek to bring the market back into equilibrium. At present, our calculation of break-even system-wide is in the $85–$100 a barrel range on a Brent basis,” he wrote.
Steffens estimated that upstream U.S. oil companies would all announce 20% to 50% cuts in capital spending for 2015.
“We will start seeing the impact on supply at the same time the annual increase in demand kicks in. Our model portfolio companies are all expected to report year-over-year increases in production, but at a much slower pace than the last few years.
“Low oil prices will hurt the unhedged upstream companies, but they will hurt the oilfield services sector the most,” he said.
Steffens said he was expecting the onshore active rig count to drop by 30% by mid-2015.
He said oil price would need to firm up for several months before the upstream companies commit to higher spending levels.
“Remember, North America and deepwater are the only places with meaningful production upside.
“If crude oil prices move below US$60 per barrel and stay there for even six months it could prove catastrophic to non-OPEC supply. At some point, OPEC action may become necessary,” he concluded.