The world’s reliance on oil supply from OPEC and other large producing nations from Russia to several in Africa will end soon, as they are supplemented by U.S. output. That, in turn, means oil demand may not strain the global market and, as it has in the past, press crude prices higher. The United States is about to change how the oil price game is played for decades to come.
The International Energy Agency (IEA) issued its annual “Medium-Term Oil Market Report (MTOMR).” Its two most notable observations about the global oil markets:
According to the MTOMR, the effects of continued growth in North American supply — led by US light, tight oil (LTO) and Canadian oil sands — will cascade through the global oil market. Although shale oil development outside North America may not be a large-scale reality during the report’s five-year timeframe, the technologies responsible for the boom will increase production from mature, conventional fields — causing companies to reconsider investments in higher-risk areas.
North America has set off a supply shock that is sending ripples throughout the world,” said IEA Executive Director Maria van der Hoeven, who launched the report at the Platts Crude Oil Summit in London. “The good news is that this is helping to ease a market that was relatively tight for several years. The technology that unlocked the bonanza in places like North Dakota can and will be applied elsewhere, potentially leading to a broad reassessment of reserves.
Two or three years ago, these observations would have been unthinkable. Now, they are the core assumptions about the future of crude oil production. Even as demand surges in nations led by China and perhaps India, the expected results of crude prices over $10o per barrel permanently can be put aside. America should be an exporter of energy within 10 years, according to many experts. That is a sea change in the long-held belief that the U.S. would depend on imported oil until global crude supplies are exhausted.
The forecast not only means the U.S. supply will be critical to future prices. It means the wealth created for OPEC nations and their treasuries will ebb. The economies of several Middle East countries will be damaged after years of wealth creation. The same holds true for Venezuela and some of the poorest nations in Africa that happen to have large crude reserves.
Experts have expected the oil sands supply in the United States and Canada might effect global supply. The IEA report suggests that the effect should be much greater than almost anyone expected.