Global oil supply growth is plunging with US light, tight oil falling steeply for now, although the market is expected to begin rebalancing in 2017, according to the International Energy Agency in its annual Medium-Term Oil Market Report released Feb. 22 at IHS CERAWeek in Houston.
By 2021 US and Iran are expected to be leading production gains among Organization of Petroleum Exporting Countries and non-OPEC countries.
IEA said oil prices likely will start to rise gradually because ample supplies can be easily and quickly tapped, limiting the potential for near-term, significant oil-price rallies. However, the report points to the risk of an oil-price spike in coming years as a result of insufficient energy investments.
“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,” said IEA Executive Director Fatih Birol. “The historic investment cuts we are seeing raise the odds of unpleasant oil-security surprises in the not-too-distant-future.”
The report forecast 4.1 million b/d being added to world oil supply during 2015-21, down sharply from the total growth of 11 million b/d during 2009-15.
The drop in supply growth comes as upstream investment shrinks in response to the current supply glut that is pressuring prices. Global oil exploration and production capital expenditures are expected to fall 17% in 2016, following a 24% cut in 2015.
If the forecast is accurate, it would be the first time since 1986 that upstream investment has fallen for two consecutive years.
US production is seen reaching an all-time high of 14.2 million b/d 2021, but only after falling in the short term. Light, tight oil production is expected to decline by 600,000 b/d during 2016 and by another 200,000 b/d during 2017 before a gradual recovery in oil prices.
Neil Atkinson, IEA head of oil industry and markets, said shale oil production will rise again in the future as oil prices recover. He said nobody expects $100/bbl oil again but that $80/bbl oil is likely around 2020-21.
US production is expected to remain 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 million b/d to 3.9 million b/d by 2021.
The report forecast world oil demand rising at an average rate of 1.2 million b/d through 2021, crossing the 100 million-b/d mark toward the end of the decade and reaching 101.6 million b/d by 2021.
Oil consumption is expected to escalate in India because of rising numbers of motorists. Chinese oil demand growth is slowing in response to China’s stalling economy. Overall, Asia’s oil demand continues to rise.
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