Oil shortage unlikely in medium-to-long term

Oil&Gas Materials 26 January 2021 09:58 (UTC +04:00)

BAKU, Azerbaijan, Jan.26

By Leman Zeynalova – Trend:

There is little prospect of a shortage of oil in the medium-to-long term, Trend reports citing UK-based Capital Economics research and consulting company.

“The greater flexibility associated with shale production in the US means that the sort of imbalances that historically emerged in the oil market, such as during the early 2000s, are now much less likely to occur. Moreover, low-cost producers, such as Saudi Arabia and Iraq, still have plentiful reserves. Indeed, they will almost certainly be the last ones producing,” the company said in its latest report.

Bringing it all together, the company expects that declining demand, ample supply and lower marginal costs will progressively weigh on oil prices, such that the real price of Brent crude falls to $35 per barrel by 2050.

“We think the outlook for oil prices is more positive. Although virus related restrictions will be in place across much of the world in the first half of the year, transport consumption appears likely to hold up better than in the first wave of restrictions in 2020.

And we anticipate a surge in demand in the second half of the year as the rollout of vaccines enables economies to open up and travel and hospitality to revive. • However, the potential for higher oil prices will be dampened by the huge amount of oil output capacity that is currently offline and which could quickly be brought back on stream at the right price. OPEC+ members are making production cuts of over 7m bpd at the time of writing. What’s more, US output is now around 2m bpd less than its recent peak of 13.1m bpd in March 2020,” reads the report.

The forecasts of Capital Economics assume a revival in US output and some slippage in OPEC+ compliance, but the oil market should still be in a small deficit. “As a result, we expect the price of Brent to rise to $60 per barrel by end-2021.”


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