The Global Oil Market: No Safe Haven for Prices

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Reports and presentations on the European Gas Market
European Gas Hub Analysis
Published 03/08/2016 by Leonardo Maugeri

In 2012, evidence suggested that a collapse in oil prices by 2015 was quite possible and that the duration of such a collapse would depend essentially on how quickly the massive worldwide investment in new production capacity could be stopped.

 

For multiple reasons, halting ongoing investments in the oil industry is particularly difficult.2 After a decade (2005-2014), the investment super-cycle of 2010-2014 started bringing online new production capacity and slowed the rate of decline of mature oil fields. Almost all big oil producers registered significant output growth, with the United States and Iraq leading the way, whereas demand growth was insufficient to absorb the increase of production.

 

From July 2014 on, oil prices reflected this imbalance as they started to decline constantly after staying higher than USD 100 per barrel for several years. Finally, in November 2014, they collapsed when Saudi Arabia essentially imposed a policy of no production cutbacks on the Organization of Petroleum Exporting Countries (OPEC).

 
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