Is Oil Supply About to Run into Problems?

The oil market is risking a supply crunch as producers cut spending on major projects to focus on short-term low-cost shale output in the U.S., some of the top crude and products traders said.

With oil prices hovering around $50 a barrel, current project spending is focused on “short-cycle” projects involving U.S. shale deposits, Daniel Jaeggi, president of Mercuria Energy Group Ltd., said at the FT Commodities Global Summit in Lausanne, Switzerland, Wednesday. Hedging activity by these same producers is keeping future prices low until 2020, which is dissuading investment in major oil projects, he said.

“We are sowing the seeds for potential instability in the future and more volatility, ” Jaeggi said. In three to four years, “you won’t be able to satisfy demand with short-cycle barrels.”

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Craig Erlam

Craig Erlam

Senior Currency Analyst at OANDA
Based in London, England, Craig Erlam joined OANDA in 2015 as a Market Analyst. With more than five years' experience as a financial market analyst and trader, he focuses on both fundamental and technical analysis while conducting macroeconomic commentary. He has been published by The Financial Times, Reuters, the Wall Street Journal and The Telegraph, and he also appears regularly as a guest commentator on networks including Sky News, Bloomberg, CNBC and BBC. Craig holds a full membership to the Society of Technical Analysts and he is recognized as a Certified Financial Technician by the International Federation of Technical Analysts.