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2 NEWS 14.01.2021 THE global oil market is in flux once again, as COVID lockdowns come into force around the world. Oil prices may have hit 10-month highs on the back of extended production cuts from OPEC+ but black clouds have re-emerged on the horizon as the majority of OECD mar- kets appear to be struggling with a new strain of COVID. e new strain was first identified in the UK but has now been reported in China, Japan, and other major Asian markets. Optimism about short-term oil prices should be subdued as demand for fuels will undoubtedly take a hit as lockdowns continue. A potential new oil glut could be in the making for H1 2021 if exporters fail to keep their promises. Still, there will be a post-COVID era at some point, hopefully shortly after sum- mer. Optimism remains tempered, but global vaccination programs are in place, which could lead to a reopening in the near future. e real market threats in the years to come, however, are currently being ignored. After several years of being bombarded by peak oil demand or oil glut scenarios, the market is without any doubt heading towards a major sup- ply crisis. e COVID-era has not only removed short-term demand and in- creased interest in a global energy tran- sition, it has also brought down global upstream investments. Analysts have already indicated a possi- ble peak oil investment scenario, but that has been countered by many claiming that renewables will make up for losses. e reality, however, is very worrying. Demand for crude oil, natural gas, and petroleum products is going to hit a plateau in the coming decades, but it will still likely reach a level of more than 108-110 million bpd for a long period of time. Demand is likely to grow by at least 10 million bpd from current levels. With upstream investment faltering and ma- jors turning their back on oil, it remains unclear how this demand will be met. During COVID, international oil com- panies have seen a steep decline in their revenues, market value, and interest from institutional investors. e ongoing financial plunge has had an enormous effect on their total market capitaliza- tion, which plunged to unforeseen levels. In October 2020 reports showed that the combined market cap of the top-5 oil companies in the U.S. fell by 45% to $367 billion, in comparison to $690 billion in December 2019 or $674 billion in Octo- ber 2019. It wasn't only COVID that was responsible for this drop, but also glob- al macro-economic drivers, such as the U.S.-China trade war and continuing oil overproduction. In the last year, instability in the mar- ket has increased due to lower revenues, increased market cooperation, and a tsu- nami of bankruptcies, divestments, and consolidation. A significant indicator of just how much the industry was suf- fering was the removal of ExxonMobil, once the world's largest publicly traded company, from the Dow Jones Industrial Average in August 2020. Exxon suffered a huge market cap drop in 2020, falling from $300 billion in September 2019 to $144 billion in October 2020. European oil and gas companies also suffered in 2020. Almost all 25 NA-Eu- ropean oil and gas companies have seen a market capitalization crash in 2020. European supermajors Royal Dutch Shell and BP, which are in the midst of diversifying their businesses, declined in value by 33.5% and 34.5%, respectively. At the end of 2020, overall energy index- es were still around 20% lower than at the start of 2020. Major investment institutions are cur- rently turning their backs on hydrocar- bon investments. A growing political emphasis on renewables, low-carbon or even Net-Zero production, and other energy transition policies are massively hurting oil and gas investment. e IMF, WB, EBRD, EIB, and others have also stated that they are ending hydrocarbon project financing. e well-recorded oil demand destruction during 2020 has pushed oil supply risks out of the mind of analysts is seems. Most E&P compa- nies have curtailed their spending on upstream operations dramatically. ese lower 2020 investment levels, combined with several low investment years before, are now a serious threat to the future of the oil market. Market volatility is ex- pected to increase in the coming years, mainly due to the lower investment lev- els reducing supply. 2021 could be a watershed year for oil markets, in which falling investments and bankruptcies will create a supply crunch the likes of which we have never seen before. With an ever-growing list of delayed upstream projects and FIDs, the threat is growing. In a report by the International Ener- gy Forum (IEF) and consultancy BCG in December 2020, warnings were giv- en that lower CAPEX levels and low in- vestment appetite will be a real threat to markets. OPEC, IEA, and others, have already made it clear that cumulative hy- drocarbon related investments are dwin- dling. As OPEC has indicated before, investment volumes of around $12.6 tril- lion are needed to keep the oil supply for the coming decades at the current level. Norwegian oil consultancy Rystad En- ergy said that even though demand has declined in 2020, 2019 levels could re- turn before 2024/25, necessitating future upstream spending of an average of $380 billion p.a. over the long-term. e need for large scale new investments is clear, as the upstream sector has already been fighting an uphill battle to get access to the necessary investment volumes in re- cent years. Larger investments are necessary to avoid a future of higher prices and in- creased market volatility. Inadequate investments will set off another wave of unwanted boom-and-bust pricing. With oil majors indicating that CAPEX reduc- tions will be in place throughout 2021, and some even seeing 2022 as a difficult year, production is undoubtedly being threatened. Technology alone cannot be the savior. IEF research indicated that every dollar of CAPEX that is cut today will have twice as powerful an effect in terms of reducing activity as the cuts made fol- lowing the 2014 fall in prices had. As demand for oil and gas is expected to in- crease after COVID, low CAPEX supply will become a major constraint. At the moment, no real new immense oil and gas resource is available to counter de- mand growth without trillions of invest- ment dollars being poured in. A peak oil investment crisis is in the making. e current financials of most IOCs and leading NOCs are not ac- counting for peak investment require- ments. As the IEF report clearly states, industry investment will have to rise over the next three years by at least 25% yearly from 2020 levels to stave off a cri- sis. Peak oil prices also could be a reality if the market doesn't react. A PEAK OIL INVESTMENT CRISIS IN THE MAKING

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