Oil Price Slump Could be Over in Year-End

Published at 10:04AM - 09/08/16

According to industry data, the current slump in crude oil prices could be over by the end of this year, following an expected production decline, the first since 2009.

Douglas-Westwood’s (DW) World Drilling & Production Market Forecast attributes this to significant cuts in oil production from US shale plays and widespread outages in Nigeria, as a result of militant attacks in the Niger Delta.

“Therefore, the oversupply will be eroded from the supply side with the demand side stuttering as a result of slowing Chinese economic growth and uncertainty surrounding the future of European markets,” the DW report reads.

Oil Price Slump Could be Over in Year-End

However, DW does not have an equally positive view on oversupply.

The analysts believe that, the implementation of offshore developments sanctioned before the price crash is expected to lead to a further 1.8 million barrels per day (bpd) increase in offshore oil production.

Examples of these projects include the Kashagan project in the Kazakh Caspian, the South Pars development in the Middle East and even mature plays in the North Sea and south-east Asia.

Crude Oil Price Slump Could Be Near
South Pars will be one of the main contributors to oversupply in 2017

According to figures released in energy reports, demand could actually be growing by 1.2 to 1.5 million bpd in 2017.

“Therefore, it is highly likely the oversupply will increase once again next year,” the report reads.

Oversupply Won’t Lead to a Price Crash 

However, oversupply does not necessarily have to lead to another downfall in crude oil prices, DW explains.

“It is likely to dampen the recovery until later this decade when a lack of project sanctioning in the last two years leads to a significant drop in offshore oil output additions towards the end of the last decade,” the report adds.

According to DW, this is expected to lead to a peak in oil production of approximately 29.1 million bpd in 2019 before the start of a slow decline into the 2020s.