Counting output: the IEA has issued a new warning
'Oil's plunge will lead to tighter supply'
Oil's $100-plus collapse is forcing producers to cut spending and keep oil in the ground, risking a new price surge when demand recovers, the International Energy (IEA) said today.
Since oil fell from its peak near $150 a barrel in July to below $40 now, the IEA has reduced its estimate of potential supply in 2009 from Opec members and other countries by 1 million barrels per day.
"Even short-term, reduced spending is having an impact," said the energy adviser to 28 industrialised nations in its monthly oil report.
"The danger is that if too much investment slips now, the scale of the price response to resurgent demand could again destabilise the global economy."
Opec accounts for 700,000 bpd of the capacity downgrade. The group this week said that member-countries were delaying projects due to low prices.
According to the IEA, 46% of the overall net change comes from Opec's natural gas liquids and condensates capacity, which is hit as the group lowers crude supply to bolster prices.
A further 28% derives from a lower estimate of Opec's crude oil production capacity.
In addition, the IEA's production capacity forecast for this year shows 300,000 bpd less than expected from non-Opec countries, mostly due to lower investment in Russia and Canada.
Still, the IEA said oil would have to fall much further before a significant amount of supply to world markets would be shut in.
"Not much output may be shut-in because of current field economics, but further sharp falls in prices would begin to undermine even our own relatively modest expectations for 2009 non-Opec growth," it said.
While major Middle East exporters enjoy cash production costs substantially below $10 a barrel, for much of the rest of the world cash operating costs can run as high as $15 to $20.
Some are even higher. Operating costs can be $25 to $35 a barrel for projects such as Canadian oil sands and US stripper wells, which both account for around 1 million bpd of present output, the IEA said.
Spending surveys by Barclays Capital and IHS Herold point to a 10% to 15% cut in upstream capital spending for 2009, the Paris-based agency said, the first drop in several years.
Much of the reduction is concentrated in North America and Russia, where spending looks to be down by 20% or more.
In contrast, some national oil companies, such as Mexico's Pemex and Brazil's Petrobras, seem to be sustaining high levels of spending.