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Current trends and expert opinions see a supply shortage in 2025. Despite our efforts to balance production with global demand, several factors are aligning to create a perfect storm for the oil market. I'll dive into why this is happening and what it means for the future.
Increasing Demand vs. Supply Constraints
According to the CEO of Occidental, a major US oil-player, the oil market is facing significant supply shortages. The root of this issue lies in the growing global demand for oil, which is expected to outpace supply. As Occidental’s CEO noted, the industry is facing one of its most challenging periods in recent history.
Here's a few stats that support this oil shortage thesis:
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Suprising Demand: Global oil demand is set to rise as emerging markets industrialize. The International Energy Agency (IEA) forecasts an increase of 1.3 million barrels/day, bringing total demand to 102.3 million barrels per day by 2025.
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Geopolitical Instability: Key oil-producing regions are facing instability that threatens to disrupt supply chains. This includes tensions in the Middle East, Russia, and the ongoing conflict in Ukraine.
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Underinvestment in Oil Rigs: Despite having significantly higher free cash flow—70% more than 2021 levels—oil companies are only increasing capital expenditures by 30%. This cautious spending indicates underinvestment in new drilling projects and oil rigs.
Effects of Advances in Technology
Interestingly, technology within the oil industry could play a role in mitigating our shortage. AI and machine learning are being adopted across the industry to improve efficiency and predict maintenance, but their impact on overall production capacity is pretty miniscule.
For instance, predictive maintenance using AI can hugely reduce downtime and improve operations, but it doesn't substantially increase production capacity.
Also interesting, The Energy Information Administration (EIA) gave us a sobering outlook for the oil market. They forecast that Brent crude prices will remain relatively stable in the short term but are likely to spike as supply constraints become more pronounced towards 2025.
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Price Forecasts: While prices may dip temporarily, they are expected to rise significantly as the supply crunch hits. EIA projects Brent crude oil prices to average around $88/barrel in Q1 2025 vs $77/barrel today
What happens if the supply shortage becomes more severe than expected? This scenario isn't just a possibility—it's a growing concern. If oil companies continue to underinvest and geopolitical tensions remain high, the impact could be even more dramatic. We might see oil prices skyrocketing, causing ripple effects across global economies and possibly leading to an energy crisis.
The takeaway? Our oil market could see a supply shortage by the end of 2025.
For investors or consumers, staying informed about this trend is crucial. The time to act is now. Is it time to diversify your energy portfolio? Maybe. Regardless, I'll keep you posted on this trend! Subscribe to our newsletter to get exclusive reports sent straight to our inbox, weekly. For free. 👇