BAKU, Azerbaijan, Oct.26
By Leman Zeynalova – Trend:
Despite near-term market deficits owing to OPEC+ supply cuts, the big picture is that the world is not facing a shortage of oil in the medium-to-long term, Trend reports with reference to UK-based Capital Economics research and consulting company.
“Oil producers are aware of the negative long-term outlook for demand and global energy stocks have been underperforming. Oil and gas investment is also falling. Although prices play some part in investment decisions, we think that concerns about the medium term future of demand are now playing a key role in curbing investment.
“Historically, this might have been laying the seeds for a shortfall in supply in the latter half of the decade as the timing of the supply response is unlikely to perfectly match trends in demand. However, the greater flexibility associated with shale production means that the sort of imbalances that emerged in the oil market in the past are now much less likely. On the geopolitical front, we suspect that OPEC’s ability to influence the market will continue to wane over the next decade.
“OPEC has already had to align itself with other large producers (in particular, Russia) in order to maintain its ability to influence prices. However, as demand starts to contract on an annual basis, a much higher level of competition will develop on the supply side. Producers will be keen to extract as much oil as they can rather than leave it in the ground as a redundant resource. This should mean that higher-cost producers shut up shop and the low-cost producers expand market share. This is clearly a bit of simplification as countries are usually keen to ensure security of oil supply and not rely on a few major producers. Indeed, some oil companies may be subsidised for national security reasons. But it is our best guess that the low-cost producers, such as Saudi Arabia and Iraq, will be the last ones standing in a world of falling oil demand,” reads the report released by Capital Economics.
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