Investment in oil sector is already being hit hard due to the recent price plunge . Unless production is added, surplus capacity will be quickly eroded, setting up the stage for the next oil price surge, says a top industry analyst.

“Oil prices are presently being held down by oversupply – but for how long?” asks John Westwood, chairman of Douglas-Westwood London, a professional energy research group.

Production from wells declines naturally at some 9 per cent per annum and even with costly intervention at perhaps 5 per cent per annum, he said.

“With global demand at some 92 million barrels per day, this suggests a requirement to replace in excess of 4.5 million barrels per day of production in 2015 and more in 2016, etc., but where will the new oil come from?”

In its January Oil Monthly Report, the International Energy Agency (IEA) noted “A price recovery – barring any major disruption – may not be imminent, but signs are mounting that the tide will turn” and their demand growth forecast of 900,000 barrels per day for 2015 was maintained, Westwood noted.

Meanwhile, the Energy Information Administration (EIA) expects global consumption to grow by one million barrels per day in both 2015 and 2016, and some forecasts suggest US gasoline demand may, in 2015, grow by the most since the 1970s as falling prices boost consumption.

Investment in production is already being hard hit. Around 400,000 low output stripper wells each pump less than 10 barrels per day, but in total produce three-quarters of a million barrels per day and are prime candidates, Westwood said.

The IEA has suggested the US oil production may grow by 0.5 million barrels per day in 2015 but could start to peak as early as 2016.

At the other end of the scale, BHP Billiton for example has said it would cut back on its planned $4bn spending on its US shale assets. Projects underway worldwide will of course add production and Opec probably already has near 2.5 million barrels per day of spare capacity, said Westwood.

“So overall, we may reach a point of balance in 2015-16 and then see undersupply of oil and rising prices. Furthermore, we must not forget there is always potential for supply disruption, Opec has at times lost some 2 million barrels per day, non-Opec producers near 1.2 million,” Westwood concluded. – TradeArabia News Service