The idea of peak oil is definitely not dead, according to HSBC. While low demand and high supply have pushed down prices over the past several years, the market is headed back for an equilibrium, demand is growing, output from traditional fields is declining while investment in new discoveries and new technologies has dropped sharply in recent years. A crunch could be coming.

1. The oil market may be oversupplied at present, but we see it returning to balance in 2017
2. By that stage, effective spare capacity could shrink to just 1% of global supply/demand of 96mbd, leaving the market far more susceptible to disruptions than has been the case in recent years
3. Oil demand is still growing by ~1mbd every year, and no central scenarios that we recently assessed see oil demand peaking before 2040
4. 81% of world liquids production is already in decline (excluding future redevelopments)
5. In our view a sensible range for average decline rate on post-peak production is 5-7%, equivalent to around 3-4.5mbd of lost production every year
6. By 2040, this means the world could need to replace over 4 times the current crude oil output of Saudi Arabia (>40mbd), just to keep output flat
7. Small oilfields typically decline twice as fast as large fields, and the global supply mix relies increasingly on small fields: the typical new oilfield size has fallen from 500-1,000mb 40 years ago to only 75mb this decade
8. New discoveries are limited: last year the exploration success rate hit a record low of 5%, and the average discovery size was 24mbbls
9. US tight oil has been a growth area and we expect to see a strong recovery, but at 4.6mbd currently it represents only 5% of global supply
10. Step-change improvements in production and drilling efficiency in response to the downturn have masked underlying decline rates at many companies, but the degree to which they can continue to do so is becoming much more limited