High Supplies Seen Capping Oil Price Until Early 2017

The International Energy Agency (IEA) is warning consumers not to let cheap oil lull them into a false sense of security amid forecasts of a price spike by 2021.

“There was a rise, there will be a fall, and soon there will be a rise again”, Birol said on the opening day of a huge energy-industry conference that will feature addresses by the oil minister of Saudi Arabia, the secretary-general of OPEC, the president of Mexico, and U.S. Energy Secretary Ernest Moniz.

Spending on oil exploration and equipment is projected to drop by 17% this year after a 24% cut in 2015 “which would be the first time since 1986 that upstream investment has fallen for two consecutive years”, the IEA noted.

Oil supply will continue to exceed demand in 2016 by 1.1 million barrels per day, following massive surplus margins of 2 million barrels per day in 2015 and 0.9 million barrels per day in 2014, said the IEA’s Medium-Term Oil Market Report. The same experts now think that USA production, along with new supplies from Iran, which has been freed from global sanctions, will blunt what otherwise might be a sharper run-up in prices.

Although IEA sees oil market rebalancing in 2017, it is still not optimistic in the future, saying that America would becoming the biggest source of new supply by 2021.

US shale oil was the main target of OPEC’s 15-month-old policy to pump as much crude as possible to claw back market share after the boom in so-called light, tight oil (LTO).

“It is very tempting, but also very unsafe, to declare that we are in a new era of lower oil prices”, the agency said.

Meanwhile, Saudi Arabia, Russia, Venezuela and Qatar have discussed freezing production if other oil countries go along with a strategy to boost prices.

But a number of factors including the expense of producing crude from the oilsands threaten to curtail or put a stop to such growth, the IEA said. The price of wholesale gasoline jumped 4 percent.

“It is hard to see oil prices recovering significantly in the short term from the low levels prevailing”.

Global annual average demand growth over the next five years is expected at 1.2 mb/d, down from a 1.6 mb/d increase seen in 2015 when demand received an initial boost from oil price falls.

Home sales fell sharply this year in North Dakota and the West Texas cities of Midland and Odesa.