Is Another Oil Price Spike Likely?

18 Jun, 2020

CANAKKALE, TURKEY - APRIL 16: Bahama flagged oil exploration platform passes through the Dardanelles Strait in Canakkale, Turkey on April 16, 2020. Scarabeo 9 has a length of 115 metres and a breadth of 78 metres. Its gross tonnage is 36,863. Scarabeo 9 departed from Port of ConstanÈa and headed to Port of Cartagena. (Photo by Burak Akay/Anadolu Agency via Getty Images) ANADOLU AGENCY VIA GETTY IMAGES

The crash in oil prices and collapse in drilling caused many observers to warn that insufficient investment will lead to another supply shortfall and price spike. This is certainly possible but fears that insufficient upstream investment will lead to another price spike in the next few years are probably overblown.

The biggest problem is that upstream investments yield highly variable results by region: a dollar spent in the Middle Eastern oil fields can bring five to ten times as much oil on-line as in the deepwater Gulf of Mexico.

The point is that the oil resource is enormous, and much of it can be produced profitably at $50.

Prices could always spike, but the current situation is rather like 1986, when pundits warned that prices were too low to support upstream investment—and they stayed that way for a decade and a half.


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