Low oil prices are expected to persist in 2016 over global oil stocks but may see recovery in the next year when the market will begin rebalancing, a latest report by International Energy Agency (IEA) said in its outlook report for 2016-2021.
Global oil supply growth is also plunging as an extended period of low prices cut into investment in production and exploration that may result in supply security situation in later part of the period under review.
While US light, tight oil (LTO) output is falling for now, the market will begin rebalancing in 2017 and by 2021, the United States and Iran are seen leading production gains among non-OPEC and OPEC countries, respectively.
The report forecast 4.1 million barrels a day (mb/d) being added to global oil supply between 2016-2021, down from a total growth of 11 mb/d in the previous five years. The drop comes as upstream investment dries up due pressure on prices because of the current glut.
“Global oil exploration and production capital expenditures (capex) are expected to fall 17% in 2016, following a 24% cut in 2015 – which would be the first time since 1986 that upstream investment has fallen for two consecutive years,” the report said.
According to report, US production is seen reaching an all-time high of 14.2 mb/d by the end of the forecast period, but only after falling in the short term. LTO output declines by 0.6 mb/d this year and by a further 0.2 mb/d in 2017 before a gradual recovery in oil prices, combined with further improvements in operational efficiencies and cost cutting, allows production to resume its upward climb.
The United States remains the largest contributor to supply growth during the forecast period, accounting for more than two-thirds of the net non-OPEC increase. Freed from sanctions, Iran leads OPEC gains: Iranian oil output rises 1 mb/d to 3.9 mb/d by 2021.
While the oil market returning to balance in 2017, the oil prices will gradually rise but the availability of resources that can be easily and quickly tapped will limit the scope of rallies, at least in the near term.
However, the report points to the risk of an oil price spike in the later part of the outlook period arising from insufficient investment.
“It is easy for consumers to be lulled into complacency by ample stocks and low prices today, but they should heed the writing on the wall: the historic investment cuts we are seeing raise the odds of unpleasant oil-security surprises in the not-too-distant-future,” said IEA Executive Director Fatih Birol, launching the report.