A decade of abundance
Milestones reaffirm global shift from oil supply tightness to plenty.
Global oil markets notched up a number of milestones this year that echoed the story of the past decade: the world has shifted from an era of supply tightness to plenty.
What distinguished the developments of 2019 was not just how big they were but often how little impact they had. From the world’s biggestever initial public offering to its worst-ever supply disruption, a barrage of sanctions on exporters to two OPEC interventions, never before had so many momentous events left investors so unmoved.
At the heart of that indifference was the force that has transformed world energy balances over the past 10 years: the American revolution in shale oil and gas, which is cushioning global markets against shocks that would once have sent prices rocketing. This too achieved a landmark in 2019, turning the U.S. into an net exporter of crude and refined oil.
And there was another turning point showing the years ahead may also be marked by supply abundance. For the first time, the world’s leading energy institution predicted that demand for oil
— once expected to keep growing almost indefinitely — will stall at the turn of the next decade.
“This year is probably the first in my recollection where oil prices so extremely decoupled from geopolitical risk,” said Amy Myers Jaffe, senior energy and environment fellow at the Council on Foreign Relations in New York. “It was also the year when analysts and car companies started to talk about the possibility of peak car and peak demand with increasing probability.”
The biggest headlines of 2019 came out of the world’s largest oil exporter, Saudi Arabia.
The Riyadh finally floated part of state oil giant Saudi Aramco after a laborious three-year process, securing a valuation of $2 trillion that made it the world’s biggest company.
Yet the 1.5 percent stake sold was just a portion of the original plan, and mostly marketed to local buyers instead of the foreign investors once courted, as fund managers balked at the lofty asking price.
A far more traumatic ordeal rocked Saudi Arabia in September, when a swarm of missiles and armed drones blasted its Abqaiq processing facility and briefly disabled half the kingdom’s output capacity. Yemen’s Houthi rebel group claimed responsibility, although the U.S. Secretary of State Michael Pompeo blamed Iran directly.
The sudden loss of 5.7 million barrels a day was exactly the crisis the industry had feared for decades, and in previous years might have triggered a prolonged rally. Although prices initially rocketed 19 percent in an unprecedented surge, the gains dissipated in two weeks.
Riyadh’s attempts to shore up oil prices also yielded lackluster results. The Saudis led the OPEC cartel and its partners in not one but two coordinated production cutbacks this year, an unusual level of activity for the organization, and reduced its own output far more than initially planned.
Their efforts were amplified by extreme levels of political involvement in the oil market, as U.S. sanctions squeezed exports from OPEC members Iran and Venezuela to the lowest in decades. Yet prices remain about 12 percent below this year’s high, trading near $66 a barrel in London.
The main source of the cartel’s struggle remained the U.S. shale-oil industry, which has turned the country into the world’s biggest oil producer, and propelled nationwide production to a new record of almost 13 million barrels a day this year.
Even as the shale boom shows some signs of slowing, production from offshore deposits once thought unviable in an era of low prices — such as Brazil and Norway — is springing to life.
“Despite major geopolitical tensions around the world, oil markets have remained surprisingly calm,” said Fatih Birol, executive director of the International Energy Agency in Paris. “This is mainly due to significant amounts of oil supply coming into the market from the U.S. as a result of the shale revolution, and from other non-OPEC producers.”
The change is increasingly occupying financial investors, who are shifting their portfolios from fossil fuels to more sustainable energy sources.