By CHARITY MOONGA –
THE International Energy Agency says global Oil growth demand will drop to 1.2m barrels per day in 2016 from 1.8m barrels in 2015.
In its Oil Market Report (OMR) for November, the IEA ruled out oil prices returning to earlier high in the near future.
“This is because the global stock building, though slowing, continues to remain significantly above the historical average,” the organisation said.
The IEA foresees the dramatic cut in investments witnessed these past 12 months to eventually support a return to an oil price of $80/barrel by 2020 and higher in the period beyond.
The IEA report highlights the risk that oil prices could stay lower for longer on assumptions of OPEC market-share battle, resilient shale producers and slowing growth.
But the strains that low prices put on the fiscal balances of key OPEC producers should ensure that this scenario is unlikely to extend far into the future
Cautioning that the market is becoming complacent about the current overhang of supply, IEA states that by no means is there any guarantee of longer-term oil market security.
“The process of adjustment in the oil market is rarely a smooth one, but, in our central scenario, the market rebalances at $80/b in 2020, with further increases in price thereafter,” the IEA report stated, while adding that “a more prolonged period of lower oil prices cannot be ruled out.”
The two scenarios put out by IEA is influenced by the fact that oil and gas companies need to invest more than $600 billion annually just to maintain production at current levels.
“This is needed to compensate for declining production at existing fields. The many months’ plunge in oil prices has set in motion forces that eventually will lead to a rebalancing of the market through higher demand and lower growth in supply,” states the IEA.
Annual growth in demand up to 2020 is expected to slow to 900,000 barrels/day, with most of the growth coming from India, China and the Middle East.
The re-balancing of the market has already begun, with non-OPEC production led by the US slowing.
The IEA foresees a further slowdown in production by US shale oil producers in the coming months before bouncing back as prices recover.
The 20 per cent cut in upstream investments is expected to eventually leave plenty of room for shale oil producers given their short investment cycle and ability to react to a changing price environment.
“Momentum will ease towards its long-term trend as recent props sharply lower oil prices, colder-than-year-earlier winter weather and post-recessionary bounces in some countries are likely to give way,” states IEA.
Global oil supplies breached 97 mb/d in October, as non-OPEC output recovered from lower levels the previous month.