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.”