The oil market narrative will soon be turned on its head, according to Vicki Hollub, CEO of Occidental.
The oversupply will soon ease and the market will be undersupplied, pushing up prices.
Oil could be in a new “supercycle,” Goldman Sachs analysts said recently.
The oil market is on the verge of a 180 turn, according to Occidental Petroleum CEO Vicki Hollub.
The general director of the energy giant adored by Warren Buffett pointed to oversupply in the oil market as the main factor limiting prices. Growth in global oil demand is expected to slow in 2024, according to the International Energy Agency. Meanwhile, global oil supply is expected to reach a record high of 103.5 million barrels per day this year.
This type of mismatch between supply and demand has helped drive prices down in recent months, but the dynamic is about to reverse, Hollub warned, with insufficient supply expected to become the dominant theme in the over the years to come.
Although demand for crude has declined in the short term, energy markets are grappling with long-term supply issues, Hollub said, as producers have not been able to replace the oil they currently produce. She estimates that over the past ten years, the world has replaced less than half of the oil produced.
“All the major deposits have been discovered. So if you take the 20 largest deposits in the world, 97% of their volume was discovered before 2000. So we are in a situation where, in a few years, we are going to be very short of supply, so the situation will reverse,” warned Hollub.
Other oil market forecasters have warned of a similar outcome, where undersupply of crude would put upward pressure on oil prices. Chronic underinvestment in the industry also means that oil and other raw materials are in a “super cycle“, which could push crude oil can hit $100 a barrelhad previously estimated Goldman Sachs.
OPEC+ has tried to drive up prices by reducing supply, and recently the Saudi energy minister saw falling oil prices as a problem. A “scheme” carried out by market speculatorswho simply claim that demand is lower than supply.
The oil cartel has reduced its production several times to take control of global crude prices and pledged to cut production by 2.2 million barrels per day this quarter. Leading members said these cuts could be extended later in the year.
“What OPEC has tried to do is balance the markets,” Hollub said. “They’re trying to balance the markets in the short term so we don’t have all this volatility.”
But the effects of OPEC’s cuts have so far been muted. This is partly due to booming production elsewhere, notably in the United States, which produced a record volume of oil in 2023, with new records also expected for 2024 and 2025, the Energy Information Agency estimated.
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