Super-Cycle Silliness: Why Oil Prices Will Not Increase Much Further

Energy Aware

Monthly oil prices have nearly quadrupled since April 2020 and that has some analysts talking about an oil super-cycle. That seems somewhere between premature and stupid at least for oil.

We’re near the end of a price increase that began at less than zero back to the where prices were before the pandemic. That’s a recovery not a rally.

Commodity super-cycles are caused by transformational periods of economic development and massive capital investment. They are characterized by demand growth and high commodity prices that may last for years.

Figure 1 shows world crude oil and condensate supply and price from 2000 to the present.

Figure 1. Flat world production led to 2003-2014 oil super-cycle. Tight oil added 10 mmb/d of supply and ended the super-cycle. 2020-21 lower output not a supply problem but artificial from OPEC cuts & less drilling. Source: EIA, Cansim, Enverus & Labyrinth Consulting Services, Inc

An oil super-cycle began in about 2003 and ended in 2014. It was caused by a plateau in oil supply in the face of rapid economic growth in developing countries like China, Russia, Brazil and India.

High oil prices resulted in development of tight oil, and renewed exploitation of oil sands and deep-water objectives. An additional 10 mmb/d of supply were added after 2010. Prices collapsed from over-supply in 2014 ending the super-cycle.

The present oil supply situation could not be more different than in the early 2000s. World output today is low because there is too much supply for existing demand. It is low because OPEC+ is withholding 8 to 10 mmb/d. It is artificial. Global debt and unemployment have never been higher. This is not the stuff of super-cycles.

Art Berman is anything but your run-of-the-mill energy consultant. With a résumé boasting over 40 years as a petroleum geologist, he’s here to annihilate your preconceived notions and rearm you with unfiltered, data-backed takes on energy and its colossal role in the world's economic pulse. Learn more about Art here.

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  1. K Kim on April 3, 2021 at 4:29 pm

    Hi Art,

    I am a new subscriber. Thanks for this insightful newsletter. How does the US Oil supply shortage that you mentioned in December (i.e. need 800 rigs to keep 11m supply) impact this narrative (if any)?

    • art.berman on April 3, 2021 at 5:12 pm

      Welcome and I’m pleased that you like the newsletter.

      The decline in US production will begin in the next month or so. When it happens, price may increase but I am doubtful that markets will be willing to pay much more than now when producers tell them they are profitable at $52/barrel WTI.



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