It came much, much sooner than expected: a new era of oil abundance might just be in the making

As oil production swells, demand falters and prices slide, the global oil market appears on the verge of a pivotal shift from an era of scarcity to one of abundance. Oil prices have fallen as much as 20 per cent since June, despite a host of rising supply risks, leading more investors and traders to consider whether 2015 is the year in which the US shale oil boom finally tips the world into surplus. While the plunge has rekindled speculation that the Organization of the Petroleum Exporting Countries (Opec) may need to cut output for the first time in six years when it meets next month, some analysts are looking much further ahead.They say a long-anticipated fundamental shift in the market may now be under way, ending a four-year stretch when $100-plus prices were the norm, and opening a new era in which Opec restraint once again becomes paramount.The signs are everywhere: US oil imports are shrinking much faster than expected while oil production climbs to a thirty-year high. Chinese economic growth, and therefore oil demand growth, is slowing. Even output in trouble spots like Libya and Iraq is rising after years of insurrection-led losses.What is happening in oil markets “finally represent the rebalancing and the impact of this tremendous surge in US oil production,” says Daniel Yergin, vice chairman of IHS and one of the world’s foremost oil historians.The fact that oil prices are falling despite continued turmoil in much of the Middle East and sanctions on Russia “is a milestone, a marker of change.”Some analysts say it is too early to tell if the latest fall in prices is any different from previous declines, such as in 2012 and 2013, when events such as civil war in Libya and sanctions on Iran spurred sharp rebounds.A spurt in economic growth in Europe or another supply disruption could again push prices higher in the short term, but risks appear increasingly skewed lower.Last week analysts at Credit Suisse cut their 2016 Brent oil price forecast to $93 a barrel, the second-lowest among analysts polled by Reuters. The consensus OILPOLL for that year was over $101 a barrel. The bank pegged 2017 at $88 a barrel as North American output growth “overwhelms” global demand.Some oil traders agree. Long-dated futures for 2017 and beyond, which had for months held firm despite the slump in immediate prices, finally fell last week.  Global benchmark Brent crude for November fell 5 per cent last week, hitting its lowest in over two years.The implications of such a shift extend well beyond Opec. It would likely accelerate shifts in the global balance of power, with consumer nations such as the US becoming less dependent on producers like Russia or Iran. For most of the past decade, the oil market has been defined by shortage. Prior to 2008, years of underinvestment, roaring demand from Asia and fears of a looming “Peak Oil” fuelled the price rally, and Opec members have struggled to keep up with demand. Oil soared to nearly $150 a barrel by mid-2008.