Falling production from the US shale play is set to lead to a rebalancing of the oversupplied oil market next year but a short-term price rebound will be dampened by resilient US output and fresh crude supplies from Iran, according to the International Energy Agency (IEA).
The plunge in oil prices has led to a pull-back in US production as the rig count drops to curb its contribution to global supplies, which are forecast by the IEA to increase by only 4.1 million barrels per day from 2015 to 2021, compared with 11 million bpd in the previous five-year period.
“Only in 2017 will we finally see oil supply and demand aligned but the enormous stocks being accumulated will act as a dampener on the pace of recovery in oil prices when the market, having balanced, then starts to draw down those stocks,” the influential Paris-based agency stated in its medium-term market report issued on Monday.
The IEA said “it is hard to see oil prices recovering significantly in the short-term”, barring a large unexpected drop in non-Opec output, a big demand spurt or a major geopolitical event, as it bolstered market expectations of a 'lower for longer' price scenario.
It said hopes the price plunge to present low levels of around $30 a barrel would lead to a further increase in demand after a rise of 1.6 million bpd last year are likely to be dashed, with an annual growth rate of 1.2 million bpd estimated for the forecast period.
Furthermore, the supply side is being strengthened by technical innovation that is lowering costs and thereby boosting oil companies' ability to bring more crude to the market, with US producers in particular benefiting from efficiency gains.
“Anybody who believes that we have seen the last of rising light tight oil production in the US should think again,” the report stated.
US liquids output is seen reaching an all-time high of 14.2 million bpd at the start of the next decade, after short-term declines of 600,000 bpd and 200,000 bpd over the next two years, with an increase of 1.3 million bpd seen in 2021 compared with 2015.
The US is expected to be the single largest contributor to supply growth over the forecast period, accounting for more than two-thirds of the net non-Opec increase, while Iran's output is seen rising by 1 million bpd to 3.9 million bpd by 2021 as the Opec member is freed from Western sanctions over its nuclear policy.
The IEA said an expected gradual recovery in prices from 2017, combined with improvements in operational efficiencies and cost-cutting, will allow production to continue its upward climb.
However, the agency said present investment cutbacks could well lead to a price spike early next decade due to a lack of fields being brought on stream to meet rising demand.
“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 at IHS Cera Week in Houston.