Oil shortage may set in by 2016

LOW oil prices today may be setting the world up for an oil shortage as early as 2016. Today we have just 2 per cent more crude oil supply than demand and the price of petrol is under US$2 per gallon in Texas. If oil supply falls too far, we could see petrol prices doubling within 18 months. For a commodity as critical to our standard of living as oil is, it only takes a small shortage to drive up the price.

On Thanksgiving Day, 2014, Saudi Arabia decided to maintain their crude oil output of approximately 9.5 million barrels per day. They've taken this action despite the fact that they know the world's oil markets are currently over-supplied by an estimated 1.5 million barrels per day and the severe financial pain it is causing many of the other Opec nations. By now you are all aware this has caused a sharp drop in global crude oil prices and has a dark cloud hanging over the energy sector. I believe this will be a short-lived dip in the long history of crude oil price cycles. Oil prices have always bounced back and this is not going to be an exception.

To put this in prospective, the world currently consumes about 93.5 million barrels per day of liquid fuels, not all of which are made from crude oil. About 17 per cent of the world's total fuel supply comes from natural gas liquids ("NGLs") and biofuels.