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A huge spike in oil prices is coming soon


The see saw ride of the oil prices is keeping the industry on its toes. As the world looks optimistically towards the OPEC's extension of cuts, everyone is only worried about the immediate future of oil and gas. Saudi Arabia's plans and efforts to shift their economy away from the major dependency on oil has made the industry experts predict that the current imbalanced marker will steady into an equilibrium in 2018. That is when the oil prices will be higher and the US shale production will continue to increase in response to the global demand.

However, some experts like Robert Johnston, the CEO of the Eurasia Group, one of the world's most prominent political risk consultancies is dubious about such predictions. In his speech at the International Petroleum Summit 2017 of the Association of International Petroleum Negotiators he expressed his perturbation over the oil's future.

He believes that the industry in general is wrong in asking and worrying over the immediate future of the oil, and being oblivious to what will come after it, i.e. the future of oil in the consecutive, upcoming years. Saudi Arabia will not perpetuate the oil production cuts forever, and there will be a point in time soon when they will steer towards reversing these production cuts. Johnston believes the reversion to happen in the year 2018. A major imbalance in the supply demand ratio or in other words a large supply gap is looming over the oil industry as per the predictions of the Eurasia Group. This gap could be so enormous that both Saudi Arabia and U.S combined may not be able to suffice it.

Johnston's firm foresees new production of around 7 million barrels per day (MMbbl/d) by the year 2022. This can be broken down into about 5MMbbl/d from the U.S shale growth and a produce of about 2 MMbbl/d from the sea bed extraction and oil sands. However, by 2022 an additional 15 MMbbl/d of supply may be required, since the market trend for demand forecasts an annual growth of about 1 MMbbl/d. Due to such imbalance between the demand and supply, it is but indispensable for the oil industry to explore new sources of oil very soon.

Even in the face of the worst downturn in the industry, experts foresee a supply gap and inflation in oil prices for a number of years. This is largely contributed by the scant investments in the market compelled by the unprecedented 2 year price havoc. A recent report released by the International Energy Agency (IEA) estimated that if the investment in the industry continues to be sluggish over the next couple of years, a prominent increase in the oil prices will ensue by 2020 due to the continued increase in the demand of oil. The Executive Director of IEA further pointed out, that this year no major projects were started and there were no significant discoveries since the oil majors fell short of money for the exploration.

This impending supply gap entails serious repercussions that the world is unprepared for. Oil and Gas continues to be the major fuel for most of the activities of the global economy, even when there is a steep rise in the use of renewable sources of energy. Even though there is a surge in the use of electric cars, particularly in the Asian markets, the demand remains inclined to the conventional oil and gas. Last year more than 90,000,000 vehicles were purchased but less than 1% of them run on energy sources other than the oil. 6 in out of 7 people today live in undeveloped nations which indicates that the demand for oil has in truth just started.

The industry direly requires new sources of oil and investors and technologies are needed to step up the exploration processes. We have seen an emergence of a large number of techniques that aid in locating new deposits but they are limited in their ability to precisely calculate the size of the reservoirs.

At this point technologies like Artificial Intelligence need further enhancement to help in efficient and viable exploration of the oil deposits so that the exploration projects do not fall behind the demand.