The impact of the OPEC led production cuts are being digested.
The cuts were originally hoped to push up prices whilst absorbing some of the excess global supply.
Whilst the concern today is the oil excess, in the future the opposite could be true, said Gibson Research in a report.
Lower oil prices have resulted in lower investment, leading the IEA to warn of a potential oil supply crunch in the next three to five years.
Investment in conventional oil exploration and production has declined over the past two years - conventional oil refers to oil produced by traditional drilling methods both on land and offshore, which are often long term projects requiring high levels of CAPEX, with long payback periods.
The IEA estimated that yearly global oil and gas investment dropped by a quarter in 2015 and by an additional 26% in 2016. Meanwhile, oil demand is forecast to grow steadily year-on-year at an average rate of 1.2 mill barrels per day per annum through 2022.
While the oil majors have not stopped investing in oil and gas completely, a greater emphasis has been placed on investment in short-cycle projects, such as shale oil, which offer quicker returns and less long term risk.
For example, Chevron recently announced it would focus spending on short-cycle projects in the US Permian Basin, a view echoed by ExxonMobil, who confirmed a $6.6 bill acquisition of oil fields in the same region.
Although the potential of these projects is not in doubt, this is not considered enough to fill a potential future supply shortage at current oil price levels. If new oil supply is not brought on stream to meet future demand, markets will begin to place an ever greater reliance on Middle East OPEC producers.
This could be good news for VLCC demand out of the region. However, the cost might be fewer loadings from West Africa and Caribbean/Latin America to the East, where investment levels have been trimmed over the past two years.
Furthermore, OPEC spare capacity would be reduced, limiting its ability to intervene during times of market instability. Thankfully, oil industry costs are pro-cyclical and the cost of everything from labour to field services, raw material and spare parts tend to rise and fall with the price of oil, Gibson said.
This cycle has helped reduce shale investment costs and also offers hope for future conventional oil investments. Royal Dutch Shell, Chevron and ExxonMobil have all recently signalled their intent to return to deep water drilling in the Gulf Mexico with large investments.
It may be a little too early to tell what this means for the tanker markets and where the actual balance will lie in terms of the trade flows in the medium term.
However, one thing is clear. The Middle East will continue to play an important role, with crude exports out of the region remaining one of the key demand drivers for the crude tanker market, Gibson concluded.
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