Schorn also addressed the view of supply and demand in the oil patch and where trends are headed next. He did hint that a faster recovery will ultimately arrive versus what many pundits are expecting. The presentation said:
It is clear that the current downturn is driven by supply, due to high levels of marketed supply from Middle Eastern OPEC together with a dramatic increase in production from unconventional resources in North America. This combination has outstripped growth in demand and raised stocks to record levels, driving prices significantly lower and cutting industry investment to unsustainable levels that are already leading to flattening production. Once a second year of falling investment takes hold, we expect flattening production to become falling production as decline rates dominate …
There is however one major difference between the crash of 1986, and that of today. Thirty years ago, the rapid development of new sources of conventional oil production in the North Sea, Mexico and Alaska led to OPEC spare capacity of more than 10 million bbl/d. Today, spare capacity is about 3 million bbl/d as marketed supply reduces available spare capacity.
In spite of a very different crude oil supply mix with the world’s largest consumer now capable of meeting its needs to a much greater extent than at any time in the past 30 years, we believe that two consecutive years of reducing investment will lay the foundations for a faster recovery than some observers are suggesting.
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