Why we could see an oil price shock in 2016
The depletion of old oil wells is expected to surpass new sources of supply in 2016, as the ongoing oil price slump puts a long list of oil projects on the shelf.
Bloomberg flagged new data from the Norwegian consultancy firm Rystad Energy, which predicts that legacy production will tip the supply balance into the negative in 2016 for the first time in years.
The production from an average conventional oil field typically ramps up in the early years, plateaus and then enters a period of decline. Depletion rates vary wildly from field to field, but a rule of thumb for conventional oil fields – which make up the bulk of total global supply – is that they decline something like 6 percent per year on average. Again, those depletion rates can differ depending on location, levels of investment, etc., but one thing that is clear is that the oil industry needs to bring new oil fields online every year in order to merely keep production flat.
- Asif Ehtesham