There are signs of possible spike in prices of crude oil in the international market as exploration activities are currently at 70-year low and supply shortfall lying ahead.
Explorers in 2015 discovered only about a tenth as much oil as they have annually on average since 1960 but they’ll probably find even less this year, spurring new fears about their ability to meet future demand.
With oil prices down by more than half since the price collapse two years ago, drillers have cut their exploration budgets to the bone.
Global benchmark Brent advanced 0.6 percent to $49.57 a barrel at 2:12 p.m. in London on Tuesday.
Oil prices at about $50 a barrel remain at less than half their 2014 peak, as a glut caused by the U.S. shale boom sent prices crashing. When the Organization of Petroleum Exporting Countries decided to continue pumping without limits in a Saudi-led strategy designed to increase its share of the market, U.S. production retreated to a two-year low.
This situation has adversely affected Nigeria and other countries depending on exportation of crude oil since mid-2014 when prices plummeted with most of them facing balance of payment deficits and the economy of Nigeria suffering dire consequences.
This year, drillers found just 736 million barrels of conventional crude as of the end of last month.
That’s a concern for the industry at a time when the U.S. Energy Information Administration estimates that global oil demand will grow from 94.8 million barrels a day this year to 105.3 million barrels in 2026.
While the U.S. shale boom could potentially make up the difference, prices locked in below $50 a barrel have undercut any substantial growth there.
New discoveries from conventional drilling, meanwhile, are “at rock bottom,” said Nils-Henrik Bjurstroem, a senior project manager at Oslo-based consultants Rystad Energy AS. “There will definitely be a strong impact on oil and gas supply, and especially oil.”
Global inventories have been buoyed by full-throttle output from Russia and OPEC, which have flooded the world with oil despite depressed prices as they defend market share. But years of under-investment will be felt as soon as 2025, Bjurstroem said.
Producers will replace little more than one in 20 of the barrels consumed this year, he said.
Global spending on exploration, from seismic studies to actual drilling, has been cut to $40 billion this year from about $100 billion in 2014, said Andrew Latham, Wood Mackenzie’s vice president for global exploration. Moving ahead, spending is likely to remain at the same level through 2018, he said.
Exploration is easier to scratch than development investments because of shorter supplier-contract commitments. This year, it will make up about 13 percent of the industry’s spending, down from as much as 18 percent historically, Latham said.
The result is less drilling, even as the market downturn has driven down the cost of operations. There were 209 wells drilled through August this year, down from 680 in 2015 and 1,167 in 2014, according to Wood Mackenzie. That compares with an annual average of 1,500 in data going back to 1960.