Structural Supply Deficit? Here We Go Again

Anytime the topic of an oil structural supply deficit comes up, this is how I feel.

So it's no surprise that when Exxon released its long-term outlook yesterday, it was like porn for the oil bulls. In the outlook, this chart especially stood out.

Oil

Natural Gas

While it is true that oil and gas companies need to continuously invest every year to replace existing declining oil and gas production, the above charts feel a bit unreal. The chart implies that we need new fields in order to sustain production over ~100 million b/d (which is very true).

And while I am very bullish on oil in the long term, there also needs to be a sense of realism here when we look at this chart. Someone at Exxon basically took existing oil and gas fields, applied an arbitrary decline rate (~4% in this case), and Excel dragged it.

What this chart likely doesn't reflect is each company's ability to expand existing inventory. It is broadly correct for larger oilfield projects that require a multi-year planning process, but for the short-term cycle barrels like shale, this is not a good illustration.

But on the topic of US shale, I think there's a greater point to be made here that wasn't covered in Exxon's outlook.

US Shale's Peak?