2010s oil glut

The 2010s oil glut is a serious surplus of crude oil that started in 2014–2015 and accelerated in 2016, with multiple causes. They include general oversupply as US and Canadian shale oil production reached critical volumes, geopolitical rivalries amongst oil-producing nations, falling demand across commodities markets due to the deceleration of the Chinese economy, and possible restraint of long-term demand as environmental concerns steer an increasing share of energy consumption away from fossil fuels.

The world price of oil was above US$125 per barrel as recently as 2012, and remained relatively strong above $100 until September 2014, after which it entered a sharp downward spiral, falling below $30 by January 2016. OPEC production was poised to rise further with the lifting of international sanctions against Iran, at a time when markets already appeared to be oversupplied by at least 2 million barrels per day.[1]

In December 2015, The Telegraph quoted a major oil broker stating: "The world is floating in oil. The numbers we are facing now are dreadful"[2] – and Forbes magazine stated: "The ongoing oil price slump has more or less morphed into a complete rout, with profound long-term implications for the industry as a whole."[3]

Unsustainable prices

Economist Nicolas Firzli warned in 2014 that "the price of oil has stabilized at a relatively high level (around $100 a barrel) unlike all previous recessionary cycles since 1980 (start of First Persian Gulf War). But nothing guarantees such price levels in perpetuity."[4]

Additional output from North American shale fields

Combined U.S. and Canadian oil production nearly doubled from 2008 levels, due to substantial improvements in shale "fracking" technology in response to record oil prices. The steady rise in additional output, mostly from North Dakota, Texas and Alberta, eventually led to a plunge in U.S. oil import requirements and a record high volume of worldwide oil inventories in storage.[5]

Slower demand growth from China

The 2015–16 Chinese stock market crash slowed the growth of the economy in China, restraining its demand for oil and other industrial commodities.

Geopolitical rivalries among exporting nations

In spite of longstanding geopolitical rivalries – notably the GCC bloc versus Iran and Venezuela – emerging markets oil producers within and outside OPEC maintained at least some output discipline until the fall of 2014, when Saudi Arabia advocated higher OPEC production and lower price levels to erode the profitability of high-cost shale oil production.

Fossil fuel divestment and climate change

In the quarters leading up to the 21st UN Climate Change Conference in Paris, US and European policy makers, pension trustees and academic thought-leaders became active devising new ways of fostering private capital stewardship and “greener” investment: persuading and incentivizing institutional asset owners to embrace renewable energy and a low-carbon investment ethos, more propitious for long-term growth.

Speaking at the 5th annual World Pensions Forum held in Paris on the sidelines of the UN Conference, Earth Institute Director Jeffrey Sachs argued that institutional investors would eventually have to divest from carbon-reliant oil industry firms if they could not react to political and regulatory efforts to halt climate change: "Every energy company in a pension fund's portfolio needs to be scrutinized from purely a financial view about its future, 'Why is this [a company] we would want to hold over a five- to 20-year period?'... If we continue to hold major energy companies that don’t have an answer to a basic financial test, we are just gambling. We have to take a fiduciary responsibility – these are not good bets."[6]

President Obama insisted on America’s essential role in that regard: “We’ve led by example […] from Alaska to the Gulf Coast to the Great Plains [...] we’ve seen the longest streak of private job creation in our history. We’ve driven our economic output to all-time highs while driving our carbon pollution down to its lowest level in nearly two decades. And then, with our historic joint announcement with China last year, we showed it was possible to bridge the old divide between developed and developing nations that had stymied global progress for so long […] That was the foundation for success in Paris.”[7]

References

  1. ↑ Kalantari, Hashem; Sergie, Mohammed (2 January 2016). "Iran Says Post-Sanctions Crude Output Boost Won't Hurt Prices". Bloomberg News. Retrieved 16 January 2016.
  2. ↑ Evans-Pritchard, Ambrose (29 December 2015). "Goldman eyes $20 oil as glut overwhelms storage sites". The Telegraph. Retrieved 29 December 2015.
  3. ↑ Sharma, Gaurav (11 December 2015). "Oil Market Rout: Winners, Losers And Cost Implications For 2016". Forbes. Retrieved 29 December 2015.
  4. ↑ Firzli, M. Nicolas J. (6 April 2014). "A GCC House Divided: Country Risk Implications of the Saudi-Qatari Rift". Al-Hayat (London). Retrieved 29 December 2014.
  5. ↑ Krassnov, Clifford (November 3, 2014). "U.S. Oil Prices Fall Below $80 a Barrel". The New York Times. Retrieved December 13, 2014.
  6. ↑ Pearce, Andrew (6 December 2015). "Jeffrey Sachs: Fund Managers Have a Duty to Dump Fossil Fuels". Financial News. Retrieved 30 December 2015.
  7. ↑ Obama, Barack (12 December 2015). "President Obama’s Statement on Climate Change". White House Briefing Room. Retrieved 30 December 2015.
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