Fall in non-OPEC production to balance oil market next year, prices to rise gradually from 2018, says IEA

The current fall in non-OPEC production will prompt a demand-supply balance in the global oil market next in 2017, the head of the International Energy Agency (IEA) said.

“With the fall in non-OPEC production we are seeing, we can expect the market to come back to balance in 2017. From 2018 onwards there will be stock draws, leading to a gradual increase in price levels,” Fatih Birol, IEA Executive Director, said in a speech in Tokyo.

He said from 2016 to 2021 demand was expected to rise by around 1.2 million barrels per day – slightly higher than the trend seen in the past decade – and it will cross the symbolic level of 100 mb/d in 2019 or 2020.

“On the supply side, low oil prices have started to put a brake on non-OPEC producers, US light tight oil in particular. Non-OPEC production is expected to decline by 700,000 barrels per day in 2016. This would be its largest annual decline since 1992,” Birol said, adding that US light tight oil production, however, will recover and the United States is expected to be the largest contributor to supply growth during the forecast period to 2021.

Supply from other non-OPEC producers, including Russia, China, Mexico and Colombia will decrease throughout the period due to lack of new investments, he said.

IEA had earlier said high supplies had led to a global oil glut, reducing the value of oil traded in 2015 to $770 billion, nearly USD 1 trillion lower than the all-time peak values seen just three or four years ago. Current oil market conditions should not disguise potential risks to energy security, Birol said.

“This is because the oil and gas industry reacted to the 2015 price collapse with a historically unprecedented wave of investment cuts. Companies are substantially cutting upstream capital expenditure, laying off tens of thousands of personnel, and cancelling or postponing projects.

Indeed upstream investment fell by 24 percent in 2015 and is set to fall by 18 percent in 2016. This would be the first time upstream investment has fallen for two consecutive years since the 1980s,” he said, adding that the results of these cuts will be felt everywhere.

“An annual USD 630 billion in worldwide upstream oil and gas investment is required just to compensate for declining production at existing fields. This simply keeps future output flat, at today’s levels. Investment reductions of the magnitude that we estimate for 2016 and 2017 will reduce spending to a level below what we need to maintain supply,” he said.

This will create an environment where a recovery of prices is more likely, but the longer the downturn persists, the more difficult it will be for the industry to respond rapidly, Birol added.



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