Why is the Global Oil Market tightening?
Posted: Sat Sep 15, 2018 9:21 am
Because outside of the U.S. shale plays, oil production is falling.
Goehring & Rozencwajg:
"The collapse in global discoveries of conventional oil is not new to us. It has been impressive and has received only passing comment by the financial press. In 2017 alone, the global oil industry discovered only four billion barrels while global consumption exceeded 35 billion barrels, leaving an impressive 30bn barrel gap between discoveries and demand. Over the last five years the numbers have been equally imbalanced. Since 2012, we estimate global oil consumption exceeded new conventional oil discoveries by a total of 210 bn barrels.
Investors consider the drop in conventional non-OPEC production to be immaterial given the surge in US shale oil production. However, our analysis suggests investors are completely underestimating the future impact of declining conventional non-OPEC production - production that still represents 45% of world supply."
MY TAKE: U.S. shale oil production growth has flattened recently, primarily because of the takeaway capacity issue in the Permian Basin. Regardless, U.S. shale oil production growth will only last for a few more years because at some point in the near future we will run out of Tier One drilling locations and not be able to keep up with the overall decline rate.
Goehring & Rozencwajg:
"The collapse in global discoveries of conventional oil is not new to us. It has been impressive and has received only passing comment by the financial press. In 2017 alone, the global oil industry discovered only four billion barrels while global consumption exceeded 35 billion barrels, leaving an impressive 30bn barrel gap between discoveries and demand. Over the last five years the numbers have been equally imbalanced. Since 2012, we estimate global oil consumption exceeded new conventional oil discoveries by a total of 210 bn barrels.
Investors consider the drop in conventional non-OPEC production to be immaterial given the surge in US shale oil production. However, our analysis suggests investors are completely underestimating the future impact of declining conventional non-OPEC production - production that still represents 45% of world supply."
MY TAKE: U.S. shale oil production growth has flattened recently, primarily because of the takeaway capacity issue in the Permian Basin. Regardless, U.S. shale oil production growth will only last for a few more years because at some point in the near future we will run out of Tier One drilling locations and not be able to keep up with the overall decline rate.