The calm before the storm

March 7, 2017 08:26 AM
Daily Energy Market Analysis

The volatility in the crude oil market is at a 28-month low but that complacency in the market may be short lived as the International Energy Agency warns of looming oil supply shortages during the next three years. This comes as Exxon Mobil makes a big investment in the coming U.S. oil boom as it plans to invest $20 billion in the Gulf Coast creating 35,000 construction jobs and 12,000 permanent jobs as it seeks to position itself as the U.S. becomes a major oil and gas exporter. These are high paying jobs, many of which will pay more than 100,000 dollars per year. The global energy landscape is changing and the coming oil boom is on its way and this time the White House will not get in the way.

Crude oil, along with other commodity markets, are locked in a very tight trading range. The market seems to be waiting for something to happen and for oil we can see the wheels turning. While in the short term the rise in shale oil prices seems to have checkmated OPEC production cuts, the lack of investment in more traditional oil projects is creating the shortage of the future. 

Yesterday the International Energy Agency (IEA’s) Executive director Dr. Fatih Birol, is warning of a shortage on oil in three years as reported by MarketWatch. Market Watch wrote, “The key takeaway from the IEA report is the “looming imbalance,” Matt Parry, IEA senior oil economist, told MarketWatch by email from Paris. A large potential supply deficit may take hold around 2020, “as demand growth is consistently forecast to outstrip projected increases in global oil supplies,” he said. “A net demand gain of 7.3 [million barrels per day] is forecast [for] 2016-22—vastly exceeding the projected supply growth of under 6 mb/d.”

The IEA report said that demand and supply trends point to a tight global oil market and in 2022, spare production capacity may fall to 14-year low. For now, “we are witnessing the start of a second wave of U.S. supply growth, and its size will depend on where prices go,” Dr. Fatih Birol, the IEA’s executive director, said in a statement. “But this is no time for complacency. We don’t see a peak in oil demand any time soon." And unless investments globally rebound sharply, a new period of price volatility looms on the horizon. The IEA report said that demand and supply trends point to a tight global oil market and in 2022, spare production capacity may fall to 14-year low.

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About the Author

Phil Flynn is a senior energy analyst at The PRICE Futures Group and a Fox Business Network contributor. Phil is one of the world's leading market analysts, providing individual investors, professional traders, and institutions with up-to-the-minute investment and risk management insight into global petroleum, gasoline, and energy markets.