OPEC, the International Energy Agency (IEA) and a host of Big Oil executives are sounding the alarm about a looming supply gap and potential price spike sometime after 2020. The reason: a sharp plunge in upstream investment in the years following the 2014 oil price collapse.
History is on their side, as traditionally prolonged periods of low prices have prompted sharp cuts to industry capital expenditures and lower production, eventually leading to higher prices. Such is the cyclical nature of the oil business. But these dire forecasts today are misguided. There are many reasons to believe that past cycles don’t apply to today’s markets, mainly because a thriving U.S. shale industry did not exist as recently as a decade ago.
