The International Energy Agency had a stern warning for markets on the day when the US government announced another forecast-beating US oil supply tally: OPEC be warned your output curb may result in a surge in shale production.
Earlier on Wednesday, the US government-sponsored Energy Information Administration said that stocks of crude oil rose by 5.274mln barrels in the week ended November 11. It is the third straight week of rising inventories and above market expectations of a 1.48mln increase. Meanwhile, gasoline stocks went up by 0.746mln barrels while markets were expecting a 0.416mln fall.
That helped sink oil prices, which earlier in the day were higher. The US oil benchmark West Texas Intermediate future was down 0.7% to $45.50 a barrel. Earlier this year oil sank to around $30 from a 2014 peak above $100.
But the real damage may have come from elsewhere. The industry lobby, the International Energy Agency, warned on Wednesday that an under-investment in the oil sector could lead to boom and bust conditions.
Meanwhile its chief Fatih Birol, was heard telling Reuters news agency that US shale oil producers will increase their output if oil prices hit $60 a barrel, meaning OPEC will have to walk a fine line if it curtails production to prop up prices.
And on standby for that clarion call is Texas, where the agency USGS on Tuesday announced that 20 billion barrels of oil could be stored at the Wolfcamp Shale formation.
According to USGS website: “The Wolfcamp shale in the Midland Basin portion of Texas’ Permian Basin province contains an estimated mean of 20 billion barrels of oil, 16 trillion cubic feet of associated natural gas, and 1.6 billion barrels of natural gas liquids, according to an assessment by the US Geological Survey. This estimate is for continuous (unconventional) oil, and consists of undiscovered, technically recoverable resources.”
What is more, the agency said that the estimate of continuous oil in the Midland Basin Wolfcamp shale assessment is nearly three times larger than that of the 2013 USGS Bakken-Three Forks resource assessment, making this the largest estimated continuous oil accumulation that USGS has assessed in the United States to date.
OPEC members are due to meet in Vienna at the end of the month to push through the first output limiting deal since 2008. In recent days there has been a fair amount of buzz on Wall Street that the deal might just come to fruition. But now comes to sinking feeling – is too much only going to reopen the floodgates?
The entire oil sector has suffered two years of decade-low oil prices – and to two consecutive years of falling investment in upstream oil and gas investments, a pattern Birol expects to continue in 2017.
The IEA says unless more money is spent exploring for, and developing, new oil fields, then demand may outstrip supply in the early years of the next decade.
That could see oil prices surging again, says the IEA, which represents 29 energy-producing countries.
Investment in new oil supplies last year was at its lowest since the 1950s. This year it is expected at today’s prices to amount to $440bn. But the IEA says world-wide investment must now rise to at least $700bn a year because it takes between three and six years for a new oil field to start producing.
Story by ProactiveInvestors