Long term oil prices beginning to reflect the coming oil shortage

The current conditions in the oil market are critical and we could see real oil shortages by this summer if the disruptions to Russian oil supplies persist or even worsen.

We think the oil markets finally begin to understand that a lack of investments in large oil projects over the past years is threatening supply over the entire next decade, at a time when demand will still be growing as the electrification of the transportation sector will not impact demand meaningfully for years to come.

The sharp upward moves in oil prices amidst a broader commodity prices rally have pushed realized inflation and near-term inflation expectations up strongly.

At it's lowest point, oil demand was down 20%. As a comparison, during the great recession of 2008-2009, oil demand was down just about 3.5% at any point in time.

As we have explained in earlier reports, there is a very strong relationship between the level of inventories and crude oil time-spreads, the difference between the prompt prices and longer-dated prices on the forward curve.

So it appears that the strong crude oil prices are mainly the result of a very backwardated curve because supply is struggling over the short term.

We think the oil markets have finally begun to understand that a lack of investments in large oil projects over the past years is threatening supply over the entire next decade, at a time when demand will still be growing as the electrification of the transportation sector will not impact demand meaningfully for years to come.

https://www.goldmoney.com/research/goldmoney-insights/long-term-oil-prices-beginning-to-reflect-the-coming-oil-shortage-part-i