IEA Sees No Oil Price Rebound For Years
Oil prices are likely to stay below $80 per barrel for another five years, according to a closely watched energy report.
The International Energy Agency released its 2015 World Energy Outlook (WEO), with predictions for energy markets out to 2040. Although there are no shortage of caveats, the IEA projects that oil prices will only rebound slowly and intermittently, and the supply overhang will slowly ease through the rest of the decade. In its “central” scenario, it sees oil prices rebalancing in 2020 at $80 per barrel, with increases in the years following.
At issue, as always, is supply and demand dynamics. The IEA estimates that the oil industry will slash upstream investment by 20 percent in 2015, which will cut into long-term supply figures. Non-OPEC supply will peak before 2020 as a result of much lower investment, topping off at 55 million barrels per day.
Related: Venezuela Liquidating Assets As Economic Crisis Worsens
U.S. shale will recover as prices rebound, but the IEA still sees it as a passing fad. As the sweet spots get played out in the U.S., and costs remain elevated compared to other sources of production from around the world, shale will not be around for the long haul. The IEA sees U.S. shale output plateauing in the early 2020s at 5 million barrels per day. Thereafter, it declines.
The IEA weighs a scenario in which oil prices don’t actually rebound in the medium to long-term, however. In this scenario, OPEC continues to pursue market share, U.S. shale remains resilient, and the global economy doesn’t perform as well as expected. All of that adds up to oil prices remaining at $50 per barrel through the remainder of the decade and only rising to $85 per barrel by 2040.
Of course, there is a flip side to that coin. Persistently low prices gut investment in new sources of supply, which sow the seeds for a supply shortage in the years ahead. As a result, prices could spike.
…click on the above link to read the rest of the article…
