Crude oil demand is going to continue growing, but insufficient investment could tip fundamentals into imbalance, Russia’s Alexander Novak said today in Beijing.
Global demand for oil is about to reach 104.6 million barrels daily this year, the Deputy Prime Minister said, as quoted by TASS. That is slightly lower than OPEC’s demand forecast of 105.14 million barrels daily.
Investment in new supply, however, is slow, which has raised the risk of a shortage, according to the official, who is Russia’s top negotiator in OPEC+. Natural depletion at mature fields is one reason for this situation, Novak noted, and the higher cost for the development of additional supply is another.
“We are now seeing traditional accessible reserves being depleted, while hard-to-recover reserves require significantly higher costs. Therefore, if investment in the oil industry is not renewed in the near future, consumption will outpace supply and we will face a market imbalance,” he said.
While the dominant mood in oil markets right now is a distinctly bearish one, earlier in the year, none other than the International Energy Agency issued a warning on depletion rates, saying they were advancing faster than previously believed.
The agency noted that almost 90% of oil and gas investment since 2019 has gone towards offsetting depletion rather than meeting growing demand. Unless this changes, the IEA said in September, “modest production growth could continue in the future. But a relatively small drop in upstream investment can mean the difference between oil and gas supply growth and static production.”
OPEC has repeatedly warned against underinvestment in new oil and gas supply on the same grounds as Russia’s Novak. A number of officials from the group have pointed out that the global energy demand picture does not reflect net-zero aspirations, and investments need to be allocated according to physical reality rather than those aspirations to avoid a price shock.
By Irina Slav for Oilprice.com
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