ECONOMIC STUDIES | MAY 1ST, 2017
ECONOMIC NEWS
The Drop in New Oil Discoveries Confirms That Last Year’s
Prices Were Unsustainable
Last week, the International Energy Agency (IEA) disclosed that
new discoveries of conventional oil reserves had plummeted to a
historic low of only 2.4 billion barrels in 2016, compared with an
average of 9 billion barrels in the previous 15 years. What’s more,
sanctioned conventional drilling projects have tumbled 30% to
a 70‑year low. The IEA is warning that this downtrend could
continue this year.
This sharp drop in oil discoveries is a concern, especially amid
signs that global demand will keep rising at a good pace in the
medium term. New technologies have enabled demand for oil to
stabilize in advanced countries, and it could shrink significantly
if a genuine movement toward electric cars ever takes hold.
That said, demand for oil is poised to increase rapidly in several
emerging countries, like India, where oil consumption per capita
remains very low. As such, the IEA’s medium-term forecasts call
for global demand to rise by 7.3 mbd (million barrels per day)
by 2022.
As oil price rise over the past year should not be enough to
trigger a strong resurgence of investment in the conventional
oil industry, shale oil production will have to expand to ensure
the global oil supply. The news on this score is encouraging; the
industry in the United States seems to once again be humming
at full capacity. Compared to its low point, U.S. output is already
up by about 0.8 mbd, and the surge in drilling suggests that this
increase will continue.
GRAPH
Demand for oil will continue to climb, especially in emerging
countries
Global demand for oil, according to the International Energy Agency
Millions of barrels/day
120
100
103.8
96.6
80
60
40
20
0
2016
2017
2018
OECD
2019
2020
2021
2022
Rest of the world
OECD: Organisation for Economic Co-operation and Development
Sources: International Energy Agency and Desjardins, Economic Studies
will be enough to offset the potentially persistent weakness in
conventional oil remains to be seen.
Mathieu D’Anjou, CFA, Senior Economist
IMPLICATIONS
The drop in the discovery of new oil reserves confirms that the
oil price correction, which peaked in early 2016, was greatly
exaggerated. Oil prices deeply below US$50 a barrel and a
lack of investments in the oil industry would quickly create an
oil shortage. At a minimum, oil prices will have to remain high
enough in the medium term to stimulate shale oil development
in the United States. Whether the run-up in unconventional oil
François Dupuis, Vice-President and Chief Economist • Mathieu D’Anjou, Senior Economist
Benoit P. Durocher, Senior Economist • Francis Généreux, Senior Economist • Jimmy Jean, Senior Economist • Hendrix Vachon, Senior Economist
Desjardins, Economic Studies: 514‑281‑2336 or 1 866‑866‑7000, ext. 5552336 • [email protected] • desjardins.com/economics
NOTE TO READERS: The letters k, M and B are used in texts and tables to refer to thousands, millions and billions respectively.
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