10 November, AtoZForex.com, Lagos – It could take five years for oil prices to rise back to $80, according to a research report from the International Energy Agency (IEA). This estimate is based on assumptions that oil supply outside OPEC will diminish in growth by 2020, as the industry continues to feel the weight of spending cuts that started this year.
This year, investment in new oil supply has been cut by over 20 percent, according to the IEA estimate, following the slump in crude oil prices as the Organization of Petroleum Exporting Countries (OPEC) adamantly defended its market share rather than support prices.
Some interesting points made in the IEA report are as follows:
- Production growth from non OPEC member countries will slow over the next five years to less than a third of the rate recorded from 2010 to 2015
- U.S. shale oil output will diminish in the early part of the next decade after peaking at about 5 million barrels a day, while crude prices recover to $80 in 2020 and keep rising.
- Iran and Iraq will mastermind an expansion of OPEC’s output in the coming years as growth stalls in non-member countries.
- Annual global demand growth will average 900,000 barrels per day for the rest of the decade, driven by emerging economies. That compares with an average of 1.15 million a day from 2000 to 2010, IEA data show.
Shale production slumps
U.S drillers will feel the effect even more. Already, they have cut down the number of rigs in use by an unprecedented 63 percent in the past year and daily production has fallen by 450,000 barrels from its June peak. However, the fall in shale production is expected to be short lived, as production is forecast to resume “its upward march” in the next decade, once prices recover to plateau at 5 million barrels a day.
To maintain output at current levels, continued spending of about $630 billion on exploration and production each year will be required from the global oil and gas industry, to maintain output at current levels as aging fields continue to decline. However, oil prices could stay near $50 a barrel this decade, if:
-global economic growth falls short of forecasts,
-OPEC boasts production more than expected or
-U.S. shale supply proves surprisingly resilient
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