World Energy Outlook 2015 (WEO) from the worldwide Energy Agency (IEA) has taken observers by surprise.
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In the meantime, OPEC nations are exceeding their production limit of 30 million barrels per day by more than 1.5 million barrels, so it’s no wonder oil prices are so low. Of more concern, it sees massive potential downside to its prediction.
The goal was to wage a price war that would keep oil prices so low that such producers, who rely on relatively expensive hydraulic fracturing, or fracking, can’t afford to drill for oil.
How likely is this scenario?
In past oil routs, prices were ultimately affected by supply changes.
But while production in the USA has started to fall, other major suppliers have ramped up output as they tussle for market share. $630 billion of that, equivalent to total annual industry spending over the past five years, is needed simply to compensate for production declines at aging fields-not even to bring new supply online.
The agency will also release its latest estimate of USA weekly oil output. Lower prices alone would not have a large impact on the deployment of renewables, but only if policymakers remain steadfast in providing the necessary market rules, policies and subsidies. In the executive summary, the report describes that the short investment cycle of tight oil is able to respond quickly to upward price signals. Oman has been highly sceptical of OPEC, led by Saudi Arabia, which has kept its own production high, further depressing prices.
Internationally traded Brent crude futures were down 28 cents at $47.16 a barrel. Breaking through that level would require a supply response elsewhere (which OPEC has been unwilling to provide) or a rise in demand. “And we see an increase in the demand for OPEC crude”, Badri said. Neither are prepared to pick up the slack this time around.
Furthermore, shale oil, which the United States produces, is a very light blend of oil. Assuming they arrive as scheduled, the 19 million barrels being hauled would mark the biggest monthly influx from Iraq since June 2012, according to Energy Information Administration figures.
Gains in technology shares, including Microsoft, helped to offset losses in US stocks. That 3.5 million barrel production will come in the “next two to three years”, said Abdulla Nasser al-Suwaidi, the director-general of the Abu Dhabi National Oil Company.
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Overall, world energy demand grows by almost one-third between 2013 and 2040 in the central scenario of WEO-2015, with the net growth driven entirely by developing countries.
