Experts warn to imminent oil supply crunch
As world’s spare oil production capacity shrinks and underinvestment threatens future supply amid rising demand from China and persistent sanctions on Russian oil, crude oil supply could soon swing into a deficit, Goldman Sachs said.
Goldman’s top commodity analyst Jeffrey Currie’s warning of the impending supply crunch echoes the views expressed by the International Energy Agency and Saudi Aramco CEO recently.
The latest oil market report from the IEA expects oil supply growth to slow to one million barrels per day. It forecasts global oil demand will increase by 1.9 million barrels per day in 2023 to reach a record 101.7 million barrels per day — with nearly half of that coming from China.
Amin Nasser, CEO of Aramco, which pumps about 10 per cent of the world’s crude oil supply, fears the world won’t have enough spare capacity to deal with an imminent shift in current market dynamics.
“For crude oil, we are in a situation where there is a spare capacity that is helping to mitigate interruptions,” Nasser was as saying by CNBC. “However, I am not so sure about the mid-to-long term, because as the spare capacity erodes, we will not be having the capability to mitigate any short or long term interruptions like what happened with Russia-Ukraine crisis.”
Goldman’s top commodity analyst Jeffrey Currie, speaking on the sidelines of an event in Saudi Arabia, said that the industry is not spending enough to secure future production and that spare capacity globally is declining.
This could tip the oil market into a serious supply problem next year, but the price for a barrel of Brent could top $100 before then.
Currie said rising demand from China and sanctions on Russian oil will contribute to the deficit, which he expects to manifest in the second quarter of this year. In response, producers will tap their spare capacity, leaving it lower than it was before. Eventually, this will lead to a serious imbalance between supply and demand.
“Right now, we’re still balanced to a surplus because China has still yet to fully rebound,” Currie told Bloomberg.
“Are we going to run out of spare production capacity? Potentially by 2024 you start to have a serious problem,” Currie was quoted in a report.
Several oil market analysts have echoed the concern about insufficient spending on future oil production. They have warned that sanctions, embargoes, lack of investments, will convolute into one thing and one thing only, a lack of energy supplies of all kinds when they are most needed.
Brent crude has been trading at between $75 and $80 a barrel for most of the year so far but Goldman, along with other investment banks, believes it has higher to go. According to Currie, the oil market will swing into a deficit by May.
Maarten Wetselaar, chief executive of Spanish oil company Cepsa, predicted that the crude oil price would return to triple-digits in the second half of 2023. Front-month Ice Brent crude futures were trading near $87.36 per barrel.