Markets are currently assuming that oil prices are capped right now and that with increased shale production in the US, we’re unlikely to see higher prices anytime soon.
The Story of Low Oil Prices
All we’ve heard from the financial news are stories about a glut of oil inventory, Puplava noted, based on the boom in American shale oil production. For the first time since 1970, US oil production is going to be over 10 million barrels this year, exceeding that of Saudi Arabia.
We’ve heard that if oil prices go up, shale producers will simply drill more wells. Some have even speculated that we could produce 11 million barrels a day, which would put us in line to be the number one producer in the world right now, behind Russia.
“As inventories have been shrinking, there’s a new narrative that has come into prominence and that is American shale oil production will continue to expand, satisfying that thirst for oil from the emerging world,” Puplava said. “A lot of the big oil consumption growth is really coming from the emerging world.”
Will Peak Demand Cap Prices?
Markets may be too optimistic about shale’s ability to stave off problems, Puplava noted, and the reality of electric vehicles hasn’t lived up to the hype.
While electric cars are gaining traction, the IEA just put out a report in late-2017 stating that new registrations of electric cars hit a record in 2016 with over 750,000 cars sold worldwide. However, we need to remember that the rate of growth has slowed down. We saw an 85 percent increase in electric car growth in 2014, which dropped to 77 percent in 2015, and in 2016, it dropped below 50 percent.
The idea that peak demand is just around the corner discounts the fact that electric cars represent only two-tenths of one percent of the vehicles deployed in the global car fleet, Puplava stated. We have a long way to go before electric cars penetrate markets enough to create a slack in demand.