Investment plunge can lead to sharp oil price rebound

EU and OPEC warned that massive fall in investment could in time lead to a supply shortfall and the risk of a sharp oil price rebound.

The twelfth meeting of the energy dialogue between the European Union (EU) and the Organization of the Petroleum Exporting Countries (OPEC) took place in Vienna, Austria on March 21, the official website of OPEC reported.

The EU delegation was headed by Miguel Arias CaAete, Commissioner for Climate Action and Energy at the European Commission. The OPEC delegation was led by Abdalla Salem El-Badri, Acting Secretary General of OPEC.

“The parties noted that since the last Energy Dialogue meeting in June 2014, there has been a growing challenge in energy markets, particularly for oil. Oil prices have fallen by more than 70%, many investments have been deferred or cancelled, manpower has been laid off, and the market has been searching for a supply-demand balance”.

Looking ahead, both the EU and OPEC noted with concern that the current price environment has considerably reduced investments. Such a massive fall in investment could in time lead to a supply shortfall and the risk of a sharp oil price rebound, as has been witnessed in the past.

Although producers and consumers might have different views on what is an adequate oil price level, there was broad agreement that excessive oil price volatility and/or sharp price rises would be harmful for the economies of both the producing and consuming countries. An affordable and stable oil price, alongside a balanced and stable market, is a prerequisite for economic growth for both producers and consumers.

OPEC provided an overview of the long-term oil market outlook. It highlighted that energy demand will increase by almost 50% in the period up to 2040, with oil remaining the fuel with the largest share over the next 20 years. Oil demand reaches almost 110 mb/d by 2040, with developing countries accounting for most of the growth.

Source: Trend