Analysts: “Capital discipline” raises fears of a future oil supply crisis

Analysts: “Capital discipline” raises fears of a future oil supply crisis
Analysts: “Capital discipline” raises fears of a future oil supply crisis

Oil analysts expected the continuation of the price gains of crude oil during the current week, after recording a consecutive rise over the past two weeks due to the recovery of demand in China and the easing of previous closure restrictions, as well as the abandonment of the “zero Covid” policy, and this coincides with the shrinking of the global oil supply as a result of “OPEC” production restrictions. +” warned American producers.
Analysts pointed out that the gains are limited by a sudden increase in US oil stocks that exceeded previous expectations and estimates, as well as the persistence of fears of a global economic slowdown in light of conflicting expectations about the fate of successive increases in US interest rates to combat global inflation.
Analysts stated that the growing levels of efficiency in the crude oil industry led to a reduction in capital intensity, pointing out that despite this, global spending on upstream projects recovered strongly last year, but remained below pre-pandemic levels.
Analysts pointed to data issued by the “Platts” agency confirming that with the commitment of some producers to capital discipline – despite the rise in oil and gas prices – this led to raising fears of an oil supply crisis in the future.
They pointed to expectations of an increase in spending on upstream oil projects to $485 billion this year, noting that most oil companies have adjusted the budgets of upstream projects relatively, pointing out that Intel Energy is likely to increase global capital expenditures by 12 percent on an annual basis. , provided that growth is mostly coming from countries and regions outside OPEC, specifically in Guyana, Brazil, the Gulf of Mexico, the North Sea and West Africa.
“The current wave of crude oil price gains is expected to continue this week due to the travel and tourism season in China associated with the Lunar New Year holiday, which caused an increase in fuel imports,” Ross Kennedy, managing director of QHA Energy Services, told The Economist. He considered that the recovery of Chinese demand will represent the largest boost to global demand during the first quarter of this year.
He referred to the upcoming meeting of the ministers of the “OPEC +” coalition within the framework of the production control group at the beginning of next month, which is likely to maintain the same levels of production cuts without any recommendation to increase production, while reviewing the level of compliance with producer quotas and the impact of Western sanctions and the price ceiling imposed by the Group of Seven and the European Union. European, and most likely will lead to shrinking supplies of Russian oil production.
For his part, Damir Tsprat, Director of Business Development at Technic Group International, says, “The oil market is looking forward to more investments in upstream projects to compensate for the natural depletion in the fields, in addition to growing global demand,” but so far international reports indicate a state of recovery in spending. The last year has been subdued, despite the sharp rise in oil prices that has traditionally been closely associated with increased upstream investment.
He pointed out that production and industry costs were characterized by their rapid rise, which reduced the impact of high crude oil prices on increasing investment, in addition to that, there is a case of producers’ caution against easing investment spending restrictions in the wake of the Corona virus pandemic.
For his part, Peter Bacher, an economic analyst and legal affairs specialist, says, “Most international trends at the current stage focus on ways to accelerate the policy of reducing the use of conventional fuels and reducing oil and gas consumption,” noting that the rush in this direction is not right because the world will need all Energy resources together for a period not short,” pointing to growing fears that the world will face a crisis in oil supplies in the next decade before sufficient renewable energy sources are available.
And he quoted data issued by the “Vitol” oil trading company, which suggested that one of the important issues for the year 2023 would be the issue of lack of investment, pointing to the importance of the major oil countries focusing on supporting and revitalizing upstream projects, noting the warning of the International Energy Agency that the growth of supply is widespread. The past – which occurred from outside the “OPEC” in response to higher prices that stimulated investment – may be difficult to replicate now.
In turn, Arvi Nahar, a specialist in oil and gas affairs at African Leadership International, says, “Promoting oil investments has become an indispensable necessity to secure energy supplies in the world,” explaining that according to OPEC, the global oil industry needs to add five million barrels per day of new production capacity. Each year to offset natural declines in fields with a total investment of $12.1 trillion in spending required through 2045.
And she highlighted the assertion of the International Energy Agency that shale oil producers in the United States in particular are struggling with supply chain restrictions, cost inflation, and capital discipline, considering the state of doubts and uncertainty that dominates the oil industry at the current stage, especially with the failure of high prices to provide more supply. additional oil, which impedes the way to achieve balance in the oil market.
On the other hand, with regard to crude oil prices at the end of last week, oil prices rose at the settlement of Friday’s trading, recording the second consecutive weekly gain.
Upon settlement, Brent crude futures rose by 1.7 percent to $87.63 a barrel, recording a weekly gain of about 2.8 percent.
US crude futures rose 1.2 percent to $81.31 a barrel, recording a weekly gain of 1.8 percent.
US inventories data showed a sudden increase in inventories by about 8.4 million barrels during the week ending January 13th.
Data from the General Administration of Customs in China revealed that Beijing’s imports of Russian crude oil jumped 8 percent in 2022 compared to the previous year, to 86.25 million tons, equivalent to 1.72 million barrels per day.
On the other hand, the American “Baker Hughes” weekly report stated that the total number of active drilling rigs in the United States decreased by four this week, as the total number of rigs fell to 771 this week and 167 rigs higher than the number of rigs this time in 2022 and 304 rigs. Less than the number of rigs at the beginning of 2019 before the epidemic.
The report indicated that oil rigs in the United States decreased by ten this week to 613, which is the largest decrease in one week in the number of oil rigs since September 2021, and gas rigs increased by six to 156, while the various rigs remained unchanged at two.
The report pointed out that the number of rigs in the Permian Basin decreased by two, while the number of rigs in Eagle Ford decreased by one.
The report noted that crude oil production in the United States remained unchanged at 12.2 million barrels per day last week – according to the latest weekly Energy Information Administration estimates – as production levels in the United States increased by 500 thousand barrels per day compared to last year.



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