"Oil markets are in a perpetual state of disequilibrium; at any given point they may be moving further away from equilibrium rather than towards it. The industry has often been hit by a new shock while it is still adjusting and rebalancing from the last one."
The longer oil stays below $50/bbl the worse the next oil shortage will be.
Oil is consumed in massive quantities each day. 97,000,000 barrels of hydrocarbon based fuels and feedstock are now consumed each day. Most of them are refined from crude oil. Demand increases by over 1,000,000 BOPD each year (See chart at https://www.iea.org/oilmarketreport/omrpublic/ )
Today's low oil prices are the result of just a 2% supply surplus from mid-2014 to mid-2016. Oil markets always overshoot the mark and a supply shortage is sure to result from under-investment. Today, the supply exceeds demand by less than 1%, but high above ground inventories keep a cap on the price.
If oil stays under $50/bbl through year-end, upstream companies will not increase capital expenditures in 2017 and the result will be an acceleration of already declining non-OPEC production. Since OPEC is at max production levels, there is no cushion to offset declining non-OPEC production declines.
Oil Markets
Oil Markets
Dan Steffens
Energy Prospectus Group
Energy Prospectus Group