Millions of Future Oil Barrels Will Be MIA

IEA flags the significant drop in energy investment
Investment in shale is anticipated to fall by 50% in 2020
China oil demand a primary reason for oil's price comeback
Energy Report

Energy Report

 

The Phil Flynn Energy Report 

Where Shortages Are Born

In many cases, future oil shortages are born in a period of oversupply. The  recent crash in oil prices due to Covid-19 demand destruction, has set in motion the largest investment pullback in energy history. This is being confirmed in a new report from the IEA. The report says the Covid-19 pandemic has set in motion the most significant drop in global energy investment in history, with spending expected to plunge in every significant sector this year – from fossil fuels to renewables and efficiency. 

The IEA says that the unparalleled decline is staggering in both its scale and swiftness, with serious potential implications for energy security and clean energy transitions. At the start of 2020, global energy investment was on track for growth of around 2%, which would have been the largest annual rise in spending in 6 years. But after the Covid-19 crisis brought large swathes of the world economy to a standstill in a matter of months, global investment is now expected to plummet by 20%, or almost $400 billion, compared with last year. "The historic plunge in global energy investment is deeply troubling for many reasons," said Dr. Fatih Birol, the IEA's Executive Director. "It means lost jobs and economic opportunities today, as well as lost energy supply that we might well need tomorrow once the economy recovers. The slowdown in spending on key clean energy technologies also risks undermining the much-needed transition to more resilient and sustainable energy systems." Investment in shale is anticipated to fall by 50% in 2020, and that is going to reduce U.S. oil and gas output.

So millions of barrels of future oil supply will not be there as the industry recovers from its trillion-dollar Covid-19 hit. For oil traders, they know that as demand comes back, supply will tighten, and it looks like the market will be in balance in just a few months justifying the oil markets' historic price snapback.

Stocks are also soaring, and that should support oil. Talk of E.U. stimulus is offsetting fear about rising tensions with China. MarketWatch reported, "President Donald Trump is displeased with China over its efforts to crack down on Hong Kong,” White House press secretary Kayleigh McEnany said Tuesday.

E.U. leaders are also sending a message to China that the crackdown on Hong Kong isn’t within international norms and threatens the global order. How will these rising tensions impact trade and Chinese oil demand. China's rising oil demand has been one of the reasons for oil's big price comeback.

We get the weekly API report tonight, and there is talk that we could see another crude oil draw. Oil is finding places to go, and private services are reporting that supply in Cushing, Oklahoma will fall again, easing fears of oversupply. 

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About the Author

Senior energy analyst at The PRICE Futures Group and a Fox Business Network contributor.