In May 2016, financial services company - IHS published a report which stated that 2015 was the worst year for new oil and gas discoveries since 1952. "Oil and gas volumes discovered in 2015 were the lowest in 64 years. We've seen four consecutive years of declining oil volumes, which has never happened before. The bottom has completely fallen out for conventional exploration, and the result portends a supply gap in the future that is going to be challenging to overcome. In the current cost-cutting environment, the outlook for 2016 discovery volumes is not likely to be better, either," said Leta Smith of IHS Energy in the report. In my opinion, this was a bullish report for oil prices, as falling oil and gas discoveries will definitely have a major impact on global oil supplies.
However, this week was very interesting as far as new oil and gas discoveries were concerned. The US Geological Survey (USGS) has discovered a massive deposit of untapped crude oil in West Texas. As per the USGS, around 20 million barrels of oil is present in the Permian basin and this could be the largest ever deposit discovered in the U.S. "The fact that this is the largest assessment of continuous oil we have ever done just goes to show that, even in areas that have produced billions of barrels of oil, there is still the potential to find billions more," said Walter Guidroz of USGS. The U.S oil exploration companies have already flocked to the Permian Basin, which has resulted in low oil prices. This new discovery will ensure that companies will continue to drill aggressively in this region, thereby putting further pressure on oil prices.
Since the 1980's, Saudi Arabia has claimed that it has around 260 billion barrels of proven oil reserves, which is only next to Venezuela (which claims to have around 297 billion barrels of proven oil reserves). But these claims have never been verified by independent third parties. However, this may soon change as Saudi Arabia is finally going to disclose how much crude oil it actually holds. "Everything that Saudi Arabia has, that will be shared, that will be verified by independent third parties. This will also include financial statements, reserves, costs and profitability indicators," said Saudi Arabia's Energy Minister - Khalid Al Falih. As Saudi Arabia is preparing to partly privatize its state owned Aramco through an Initial Public Offering (IPO), information pertaining to company's oil reserves will be extremely crucial for investors.
Saudi Arabia and U.S can definitely provide a direction to oil prices with this development. Investors must note that any news related with increase in global supplies is bad for oil prices. This applies to the latest mega discovery in the United States. Speaking of Saudi Arabia, a lot depends upon the results declared by the independent third parties that will (hopefully) access the data containing Saudi Arabia's oil reserves. If it is found that the Saudis do have 260 billion barrels (or even more) of oil reserves, then this factor will put downward pressure on oil prices. However, if these oil reserves are found to be much lower than 260 billion barrels, then it will support oil prices in near future.
