The oil market will face a supply shortage by the end of 2025 because the world won't be able to replace current crude reserves fast enough, Occidental Petroleum Chief Executive Officer Vicki Hollub said Monday. About 97 percent of the world's current oil production was discovered in the 20th century, she said.Hollub added that less than 50 percent of the world's crude production has been replaced in the past decade. She said: "In a few years we will be very short of supply."
Currently, the market is oversupplied, which is depressing oil prices, despite the conflict in the Middle East, Hollub said. Oil production in the U.S., Brazil, Canada and Guyana is at record highs as demand slows.
But Hollub said the supply and demand outlook will reverse by the end of 2025. "The market is currently out of balance, but that's a short-term demand issue," Hollub said. "But the market will face long-term supply issues."
OPEC forecasts that global oil demand will increase by 1.8 million barrels per day (bpd) in 2025, more than offsetting the 1.3 million bpd increase in crude oil production from countries outside OPEC. The forecast hints at a supply shortage in the market unless OPEC abandons its current production cuts and raises its own output.
WTI March crude futures closed up 0.69% at $72.78 a barrel on Monday due to heightened risks in the Middle East; Brent crude futures for April delivery rose 0.85% to close at $77.99 a barrel.
Hollub noted that about 97 percent of the world's current oil was discovered in the 20th century, while less than 50 percent of the world's replacement crude production has been produced in the past decade. This figure highlights the huge challenge the world faces in finding new sources of crude to replace depleting existing reserves.
She told Tyler Mathisen: "We are now in a position where we are going to be very short of supply in a couple of years." She added that while the market is currently oversupplied and oil prices are suppressed, this situation will be reversed in the near future.
Hollub explained that the market is currently out of balance mainly due to short-term demand issues, particularly the drop in demand due to the economic slowdown. However, she emphasized, "But this will be a long-term supply problem." She noted that despite record oil production in countries such as the United States, Brazil, Canada and Guyana, this is not enough to compensate for the rapid decline in global crude reserves.
Forecasts from the Organization of Petroleum Exporting Countries (OPEC) seem to confirm Hollub's warning. The organization expects global oil demand to increase by 1.8 million barrels per day (bpd) in 2025 due to strong economic growth, more than offsetting the 1.3 million bpd increase in crude production from countries outside OPEC. This means that unless OPEC abandons its current production cuts and raises its own output, the world will face a severe supply shortage.
Hollub's comments came as West Texas Intermediate (WTI) and Brent crude futures prices fell more than 10 percent on record U.S. production and a weak economy. However, so far this year, the prices of both crudes have risen by more than 1%, with WTI closing at $72.78 a barrel and Brent crude at $77.99 a barrel on Monday. This suggests that market concerns about future supply shortages have begun to influence oil prices.
It's worth noting that Hollub said in an interview with CNBC last December that Occidental Petroleum expects West Texas Intermediate to average around $80 by 2024. If her prediction comes true, oil prices could continue to rise for years to come.
