An alarm bell rang last week that the world may face an oil supply crunch given the current complacency in the oil market. That is an interesting observation made by the Paris-based International Energy Agency (IEA) Chief Economist Fatih Birol last week.

It is interesting for two reasons. It came from the very person who represents an organization, IEA, that said in its oil outlook report last year that shale oil will make a big impact in the energy market and that the United States will be a net exporter by 2030 and even overcome both Saudi Arabia and Russia in terms of production volume years before that.

Also his statement attracted the media attention at the expense of a completely different report IEA was releasing.

On the sidelines of a ceremony to reveal its new annual outlook that concentrates on climate change, Birol said, “I am really worried that we are giving the wrong signals to the Middle East, which may end up with us not having investment in a timely manner.” He went on to warn that “the wait and see behavior is definitely not in the interest of consumers or global oil markets because it may mean significantly higher prices in the future.”

Interesting also was his downplaying the significance of the shale oil. In direct contrast to last year’s IEA report, Birol described the shale oil as a “surge, rather than revolution.”

Birol has a good reason to worry given the signals coming through.

Saudi Arabia does not have new plans to increase its oil production capacity from its current volume of 12.5 million barrels a day for the coming three decades, according to Minister of Petroleum and Mineral Resources Ali Al-Naimi. He told his audience at the Center for Strategic and International Studies in Washington back in April: “We don’t really see a need to build capacity to beyond what we have today.”

On its part, the UAE went a step further and deferred its plans to raise its oil production capacity to 3.5 million bpd to 2020 instead of 2017 because of what it perceives as a potential threat from the shale oil. Kuwait on the other hand is focusing more on how to curtail the decline in its aging fields, more than pushing for oil capacity growth. The three countries have been meeting around 17 percent of world oil demand.

This seems to be in the mind of Birol, where lack of investment leads usually to future supply crunch.

However, three points surface in all this and need to be taken seriously if the oil market is to see some sustainable stability.

The first perception is that there is glut or shortage in oil supply, which drives not only daily price of the barrel in various markets, but affects long-term decisions in investment areas. Perception is not something new, and speculators in the oil markets have gained and lost because of perception, but there is an added factor in terms of the social media influence with its huge impact in every aspect of life, including the oil market.

That leads to the second problem, which is the lack of accurate information. It has become a common practice for various leading organizations to put some forecast figures in one report, then in the following report to increase or decrease that forecast, which helps in sustaining the atmosphere of uncertainty.

More important actually is the issue of the responsibility shouldered by oil producers mainly in the Gulf in terms of keeping spare capacities. And that responsibility requires heavy investment, which means a financial and professional burden so as to be able to meet world oil needs even at the expense of pumping out a depletable resource like oil and in volumes that exceed the actual needs of their countries.

No other oil producing country, aside from Gulf producers or one of the majors, is helping in this and that is where this issue needs to be discussed in a very frank way. How can countries with big oil reserves continue to invest in increasing their production capacity and secure customers for their commodity.

If the world’s big consumers want assurances that they will get supplies when they need it, they ought to make commitment too that there will always be customers for those supplies provided by producers.

Unless these issues are tackled in a way that guarantees the interests of both producers and consumers, the fluctuation and perception will continue to dominate the oil market.

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