31.01.201914:30 Forex Analysis & Reviews: Oil shortage is canceled, experts say

Three years ago, the largest oil industry experts warned the markets about a large-scale reduction in investment and a growing drop in oil prices. Analysts argued that the world would face a shortage of black gold but pessimistic forecasts were not justified.

Currently, leading market experts predict a few more years of oil abundance. According to Ed Morse, the authoritative researcher in the field of commodity markets of Citigroup Inc., the global black gold market may not be worried. There will be no oil supply crisis.

The most impressive collapse of the oil market in the past 25 years has forced a number of companies to cut costs dramatically. According to estimates by the International Energy Agency (IEA), over the period from 2014 to 2016, investments in the oil and gas industry decreased by 40% to $ 350 billion. Experts consider this to be the most significant decline since the 1980s. Recall that in that period, oil prices plummeted from levels above $ 120 to $ 30.

In 2015, IEA analysts warned that the increase in oil supply in countries outside OPEC would dry up by 2020. Experts predicted a shortage of black gold in the amount of 10 million barrels per day, which is equivalent to the volumes mined earlier by Saudi Arabia. Concerns about the crisis were shared by almost all participants in the oil industry.

However, instead of a shortage of black gold, the world is faced with an abundance of supply. According to experts, the United States will produce about 12 million barrels per day in 2019. Previously, analysts said that the country will reach such a level only by 2042. In Russia, oil production is also at a record level while Iraq is close to historic highs. In Brazil, experts expect the most active growth in oil production over the past 15 years.

According to Bank of America Corp., three-quarters of non-shale projects will be profitable in five years, even at an oil price of $40 per barrel. At the same time, the risks to the market caused by the American sanctions against Venezuela and Iran have not disappeared anywhere. However, as the activity in the shale fields of the USA grows and the costs of oil producers decrease due to the use of new technologies, the threat of a deficit goes away.

The recent shale boom recorded in America gave signals of a slowdown in the market but fears were in vain due to increased production in the country. According to estimates by the consulting company Rystad Energy AS, the United States will produce more oil than both the world's leading oil producers, Russia, and Saudi Arabia by 2025.

According to most experts, the future is for shale oil and this process cannot be stopped. "It is possible that at some point its growth rates will slow down, but the trend will not turn around," said Paul Stevens, strategist at Chatham House.

The collapse of the oil market three years ago forced companies to increase their efficiency and significantly change the volume of production costs in the industry. Companies cutting costs learned how to produce oil at much lower prices. By optimizing the process, mining costs in the Gulf of Mexico and Brazil fell by 50%. The companies used the previously created infrastructure, combining it with new technologies.

According to Ed Morse of Citigroup Inc., the current costs in the oil industry continue to decline. This trend is characteristic of the whole world. Experts pay attention to the active growth of black gold production. According to analysts, large oil producers, such as Saudi Arabia and OPEC countries, are counting on an increase in oil prices, which is very beneficial for them. Therefore, it declares a shortage of supplies in the next three years.