Global oil supply growth is plunging as an extended period of low prices takes its toll, the International Energy Agency (IEA) said in its annual Medium-Term Oil Market Report (MTOMR) that was released on 22 February
While US light, tight oil (LTO) output is falling steeply for now, the market will begin rebalancing in 2017 – and by 2021 the USA and Iran are seen leading production gains among non-OPEC and OPEC countries, respectively, according to the report.
The report notes that while oil prices should start to rise gradually once the market begins rebalancing, the availability of resources that can be easily and quickly tapped will limit the scope of rallies – at least in the near term. However, it points to the risk of an oil price spike in the later part of the outlook period arising from insufficient investment.
The IEA sees 4.1mn bpd being added to global oil supply between 2015 and 2021, down sharply from the total growth of 11mn bpd in the period 2009-2015. The drop in supply growth comes as upstream investment dries up in response to the current glut that is pressuring prices. Global oil exploration and production capital expenditures (capex) are expected to fall 17 per cent in 2016, following a 24 per cent cut in 2015 – which 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 14.2mn bpd by the end of the forecast period, but only after falling in the short term. LTO output declines by 0.6mn bpd this year and by a further 0.2mn bpd in 2017 before a gradual recovery in oil prices, combined with further improvements in operational efficiencies and cost cutting, allows production to resume its upward climb. The USA remains 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 1mn bpd to 3.9mn bpd by 2021.
The report sees global oil demand growing at an average rate of 1.2mn bpd through 2021, reaching 101.6mn bpd. Indian consumption races ahead as more motorists take to the roads, while Chinese demand growth cools in tandem with the economy. The global oil trade continues its focus towards Asia. The Middle East will consolidate its place as a major refining centre, and its products exports will grow at a rate exceeded only by the USA.
