Scene set for ‘sharp’ increase in oil price – NBAD

Plummeting investment in the oil sector has set the scene for a supply shortage and a dramatic rise in prices, says the National Bank of Abu Dhabi (NBAD).

In the last two years, oil companies’ capital expenditure has collapsed due to cheap oil, causing oil discoveries to fall to their lowest level since 1947, said Claude Henri Chavanon, global head of asset management, who quoted figures from consultancy Wood Mackenzie.

“Interestingly, the natural demand growth for oil continues even in the relatively weak economic climate,” he said.

NBAD forecasts that the price of Brent crude will stay at between $57-60 a barrel for the rest of the year. However, with oil companies investing far less in capital expenditure than the $600 billion that oil company Chevron estimates is needed, a shortage of supply is predicted.

“Given a three to five-year supply lag, from a return to balance in 2017, it won’t take long to enter a shortage situation which risks a sharper increase in prices over the medium term,” said Chavanon.

©2017 funds global mena

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