Lowest oil discoveries in 70 years may mean supply shortage, price increases

Oil companies have been forced to cut their exploration budgets in the last two years because of the sharp decline in crude oil prices that the market has seen. Oil discovery in 2015, at 2.7 billion barrels, was recorded to be the lowest since 1947, said UK-based consultancy Wood Mackenzie.

From January to July 2016, only 736 million barrels have been discovered, which shows a 90% drop compare to the 1960 figures.

Analysts are expecting a further decline by the end of 2016, with concerns over the drillers’ ability to meet potential growing demand.

Global oil exploration spending has been reduced to US$40 billion in 2016 against nearly US$100 billion in 2014. This figure is projected to remain in a similar level through 2018, according to Andrew Latham, Wood Mackenzie’s vice president for global exploration.

Only 209 wells have been drilled this month compared to 680 in 2015 and 1,167 in 2014 as a result of the cutbacks, the consultancy says.

Meanwhile, the US Energy Information Administration (EIA) said global demand for crude is expected to grow from 94.8 million barrels a day in 2016 to over 105 million barrels in 2026.

Production will be definitely dragged down by the exploration slowdown, and will inevitably have a “significant potential to push oil prices up,” according toNils-Henrik Bjurstroem, a senior project manager at Norway’s consultant Rystad Energy.

The recent US shale production bloom, which could partly make up for the losses from the global production decline, was not taken into account in the Wood Mackenzie report.

Shale production is also expected to increase by almost 200% from 4.5 million barrels per day last year to 8.5 million by the mid-2020s, according to Wood Mackenzie.

Crude prices have fallen from US$115 per barrel in 2014 to US$27 per barrel in January 2016. Since then, prices have rebounded to the current US$45-US$50 range.