IEA: The Next Oil Price Shock Could Be To The Upside

While most of the talk surrounding oil in recent years has been about how low prices can go, the International Energy Agency (IEA) believes the next major price shock in coming years could be to the upside. Slumping oil prices and a massive global crude oil supply glut have lead to historic spending and investment cuts by many of the top oil companies.

“There’s a danger as we are reaching a point where we are barely investing upstream,” said Neil Atkinson, head of the IEA’s Oil Industry and Markets Division. “If investment doesn’t resume in 2017 and 2018, we can see a spike in oil prices as oil supply can’t meet demand.”

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Atkinson noted that the global oil industry needs about $300 billion in annual investments just to maintain current production levels. Top oil companies have been focusing on shoring up their balance sheets during the downturn. ConocoPhillips (NYSE: COP), Chevron Corporation (NYSE: CVX), BP plc (ADR) (NYSE: BP) and others have cut more than $100 billion in investments, laid off thousands of employees, dialed back dividend payments and sold off assets as oil prices plummeted.

The glut may keep oil prices low over the next couple of years, but a lack of investment during that time coupled with a constantly growing global demand could swing the oil market violently back to an undersupplied state somewhere down the line.

So far this year, the United States Oil Fund LP (ETF) (NYSE: USO) is down 7.2 percent.

Disclosure: The author holds no position in the stocks mentioned.

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