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Island Investing

Riffs, rants, and the upside of investing from way off Wall Street


This Week’s Sign We Are Sleepwalking Into a Supply Crunch (#4)

Some highlights from the Business Insider article, “People Are Almost Completely Ignoring a Looming Crisis for Oil”, which includes this summary of a report from HSBC analysts:

“Given the backdrop of the past two years’ severe oversupply in the global oil market, it’s not surprising that few are discussing the possibility of a future supply squeeze. Indeed, most of the current debate on the long-term outlook for oil seems focused on risks to demand from progress on both the policy and technology fronts.

“Meanwhile, we expect the past two years’ severe crude price weakness to result in a return to balance in the global oil market in 2017. At that stage, we expect global effective spare capacity to fall to as little as 1% of demand. Supply disruptions have had only limited impact on price in 2015-16 due to the global oversupply, but the market will be much more susceptible to interruptions post-2017. In addition, given the almost unprecedented fall in industry investment since 2014, we expect the focus to return to the availability of adequate supply.”

And here is the decline in global production after the peak:


Read the rest of the article here, and in particular the ten-point summary. More than makes up for that breathless headline.

And here you can download my original thesis for being all-in on U.S. oil E&Ps in the Tarpon Folio.