Fatih Birol, executive director for the IEA, said, “It would be a grave mistake to index our attention to energy security to changes in the oil price”.
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American shale oil production will decline in the early part of the next decade after peaking at about 5 million barrels a day.
This decline in investment is “a seed” for higher prices, he said Tuesday at a conference in Abu Dhabi, capital of the United Arab Emirates. In its base scenario, it forecasts that the market would rebalance at $80 per barrel in 2020, with the potential for further price increases afterwards.
Prices have collapsed by more than half since mid-2014 and now languish under $50, hurt by a stubborn global supply glut and OPEC’s decision to maintain output to counter booming U.S. shale production.
“The weakness of global manufacturing activity is… putting pressure on energy demand”, JBC Energy said, adding that it expected a significant drop in oil demand growth in 2016.
In the last 25 years, we have never seen two consecutive years where the investments are declining, and this may well have implications for the oil market in the years to come, the report reads.
By 2040, the demand is anticipated touch 103.5 million barrels per day and oil prices are expected to hit $85 a barrel.
According to the report, the low-oil price situation also indicates that the “Middle East’s share in the oil market ends up higher than at any time in the last forty years”.
Growth in OPEC’s market share isn’t guaranteed. “Where it replaces more carbon-intensive fuels or backs up the integration of renewables, natural gas is a good fit for a gradually decarbonising energy system”, the IEA said. The report comes just before an important December 4 OPEC meeting in Vienna.
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Birol pointed to the revolution in clean energy as another major driver in the shift in oil demand. The country would, however, need massive investment to retain its production target. While OPEC may gain market share in the long run, they will have to deal with the pain of low oil prices in the short run. Daily Brent prices have ranged between $45 a barrel and $53 a barrel since the beginning of September. That means Asian markets will be the most vulnerable as production narrows to the most efficient producers, namely those in the Middle East.
