How much does it cost to avoid tight oil supply? $525 billion per year!

Oil prices, stocks and other risky assets fell on Thursday as the rapid spread of the Omikron variant renewed fears that there could be more anti-epidemic restrictions that could hit crude demand
.
On Friday, international oil prices rose, with Cloth Oil January futures closing up 1.
03%, ending a six-week losing trend before that
.
The "roller coaster" of oil prices shows that market sentiment remains fragile, and the latest report adds another factor
affecting the stability of oil prices.

Recently, IHS Markit, based at the International Energy Forum (IEF) of Saudi Arabia's International Energy Forum and information analysis firm, said in a new report released this week that upstream oil and gas investment must rise to pre-pandemic levels, that is, about $525 billion per year, if the industry can ensure a balance between
supply and demand.

The IEF, the world's largest international organization of energy ministers, which includes 71 countries, including producers and consumers, reported that this year, upstream investment was sluggish for the second consecutive year, with an estimated investment size of about $341 billion
.
And that figure is almost 25%
below the level of investment in 2019 in the previous "normal" year.

While investment in oil and gas exploration and production continues to be sluggish, global demand is "now close to pre-pandemic highs and will continue to rise in the coming years, particularly in developing countries,"
the report said.
The report also notes that the next two years will be key to approving new projects to ensure adequate supply comes online
within five to six years.

As many industry professionals have previously feared, underinvestment in oil and gas could threaten the energy supply of the future, as oil and gas will be consumed for decades to come, regardless of the speed of the energy transition, and the report similarly says the underinvestment poses a problem:

Insufficient upstream investment will lead to more price volatility and adverse economic consequences
.

Saudi Aramin Nasser Amin Nasser, CEO of Saudi Aramin Nasser, warned at the World Petroleum Congress in Texas this week that a hasty transition to renewable energy would lead to inflation and social unrest, noting that to avoid that, continued investment in oil and gas
is needed.

Russian Deputy Prime Minister Novak said oil supply and demand could return to pre-pandemic levels
in 2022.
Greg Hill, president of U.
S.
oil producer Hess Corp.
, has previously said that the oil industry is "heavily under-invested" in supply to meet growing demand, and that demand will return to pre-pandemic levels
as soon as late 2021 or early 2022.

Previously, credit rating agency Moody's had said annual upstream oil and gas investment fell by about 30 percent in 2020 and has only recovered
slightly since then.
If the oil market is to avoid the shock of the next supply shortage, global annual upstream spending needs to increase by as much as 54% to $542 billion
.

At the close of the U.
S.
stock market on Friday, most of the U.
S.
large-scale asset ETFs closed higher, with the US Brent Crude Oil Fund up more than 1.
9%, the NASDAQ 100 ETF up about 1.
1%, and the S&P 500 ETF up more than 0.
9%.