Trafigura has predicted a “structural dearth of crude oil” in the coming years to meet demand growth.
Over the last decade, the market has relied on US shale to fill any opportunities created by higher prices.
“However, it is difficult to see how US production is going to increase this year given lower oil prices, higher interest rates and rising costs”, the commodity trader said in its interim report, released today.
Some forecasters had predicted the US could add as much as 1 million barrels per day this year – a move Trafigura has ruled out.
The number of rigs active in the US has fallen, down by 72 since the November 2022 peak.
The industry malaise is beyond the US, though. Trafigura reported oil companies had cut exploration and production spending by 40% from the last peak, in 2014.
While spending on new production is down, refinery investments are up. China and the Middle East have added more capacity tackling the refining bottleneck. These new plants face increased competition, the trader said.
“This raises the prospect of higher [oil] prices and heightened volatility in the years ahead, despite the rapidly increasing adoption of electric vehicles,” it said.
This time it’s different
Demand grew by 2.3mn bpd in 2022, even while Chinese consumption fell by 0.4mn bpd. This year, US and European demand is slowing – amid recession fears and higher interest rates – but China has helped support demand.
Trafigura quoted demand growth this year of more than 2mn bpd.
The trader’s chief economist Saad Rahim said that while there were concerns on recession, there were also “significant shock absorbers” from savings built up over the last three years. 2023, he said, was very different to the 2007-08 financial crisis.
“An eventual end to the rate hiking cycle should allow consumers to deploy pent-up savings and growth to resume,” Rahim said.