Oil: European Oil Majors Reducing Exploration

Back in early July I wrote a blog post about oil that highlighted the fact that capital investments for oil exploration were at 15 year lows. The expected 2020 investments are over 50% below the highs in 2014. 

If this Bloomberg (Aug 15) article is correct, expect oil investments to continue to decline:

As the coronavirus ravages economies and cripples demand, European oil majors have made some uncomfortable admissions in recent months: oil and gas worth billions of dollars might never be pumped out of the ground.

With the crisis also hastening a global shift to cleaner energy, fossil fuels will likely be cheaper than expected in the coming decades, while emitting the carbon they contain will get more expensive. These two simple assumptions mean that tapping some fields no longer makes economic sense. BP Plc said on Aug. 4 that it would no longer do any exploration in new countries.

The interesting exclusion from the article is US oil majors. 

Per Statista, oil demand has dropped from 100.1 mb/d in 2019 to a current estimate of 91.7 mb/d for 2020. That algins with the OPEC + agreement to cut oil production by 9.7 mb/d. So demand has dropped by 8.4 mb/d and OPEC + cut by 9.7 mb/d. Also, the United State's oil production has dropped by 2.4 mb/d. Now the US oil production drop is driven by a drop in rig counts while OPEC + cuts are artificial and they could easily pump more oil. 

It seems to me that if the world can get a handle on COVID-19, OPEC + with so much oil on the sidelines can actually pursue a strategy of keeping oil prices low enough to continue to drive down US oil production. If what Bloomberg wrote above is correct, the Europeans are already pursuing a strategy of less oil production. In the near future, it seems to me that OPEC + will once again get to rule the oil markets. Maybe that rule will only last 2 to 3 years, but it could lead to some high revenues for the countries in OPEC + if they play their cards correctly.