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Source: The BP Statistical Review of World Energy
There are caveats to drawing close parallels between the present and previous oil cycles. Professor Paul Stevens, an oil industry expert at Chatham House, argues that cycles should be treated with caution: “It’s fairly easy to predict trends. If you’re really smart you can predict bends in trends. But what you can’t predict are discontinuities and if you look at the history of energy markets they are dominated by discontinuities – oil price shocks, technological shocks – and those really are unpredictable.”
He believes those who suggest that big cuts in spending on exploration are set to produce a “supply crunch” may have missed one such discontinuity. “The major change this time is shale technology and in particular the way it affects the lead time on oil projects. A conventional oil project has lead times of five to 10 years and sometimes more; unconventional oil has a lead time of a matter of months.” This suggests that future oil supply may be able to respond more quickly to rising demand and therefore militate against a sudden, sharp rise in prices.
Understanding oil market cycles takes a keen awareness of both the familiar influences and the unpredictable “discontinuities” that mean each will resemble and yet differ from previous ones. BP’s Statistical Review of World Energy provides 65 years of valuable data that can help these judgements be made. Ultimately, this is the background against which energy producers and governments must attempt to resolve the so-called “energy trilemma” in order to maintain sources of supply that are secure, affordable and sustainable.
Over the decades since The BP Statistical Review of World Energy made its first appearance, the oil market has experienced a succession of sudden swings – all with different causes