Oil prices will not rebound to US$100 a barrel any time soon as US shale takes over as swing producer, the International Energy Agency (IEA) said yesterday in its medium-term oil market report covering the next five years.
Last summer oil prices peaked at $115 a barrel and moved under $50 last month. Yesterday Brent was trading just above $58.
The West's energy watchdog said that oil would remain around $55 this year and inch up to $73 a barrel in 2020.
Maria van der Hoeven, the executive director at the IEA, said that shale oil had changed the market, and Opec's refusal to cut production levels was a turning point. "[Opec] may have effectively turned [shale oil] into the new swing producer, but [Opec] will not drive it out of the market. Light tight oil might in fact come out stronger."
The ratings agency Standard & Poor’s also released a statement yesterday echoing the IEA, revising its oil price assumptions down for the next three years. The ratings agency believes that the price of oil will teeter around $55 a barrel this year, down from its October review of $105 a barrel.
The IEA said that global supply capacity will expand by 5.2 million barrels per day by 2020, but the toll on production will vary by country. The US is still expected to remain the leader for supply growth for the remainder of the decade, while Russia will take the brunt of the blows from market volatility.
Opec’s share of global supply is expected to increase from its recent lows, but the IEA said it would not recover to the levels reached before the US shale boom.
Opec said on Monday that demand for its oil would average 29.21 million bpd this year, an increase of 430,000 bpd from its previous forecast.
The UK-based research consultancy Energy Aspects believes that the IEA is not taking into account the effects of large companies reducing spending in places.
“The IEA is underestimating the impact on non-Opec production, like the US, where huge capital expenditure cutbacks are being implemented,” said Amrita Sen, the chief oil analyst at Energy Aspects. “The loss in supplies can be huge and prices are likely to rally higher and earlier than 2020.”
The steepest oil rout in five years has forced oil companies to slash capital expenditures, signalling a slower growth in supply. ConocoPhillips, the third-largest US energy producer, cut its capital budget for this year by 20 per cent — the largest by an American company.
Dubai-based Al Masah Capital said in the second half of the year a new supply picture will appear as a result of structural changes like the shutting down of US rigs. “We will then possibly see the new trading range and a possible bottom to the oil price,” said Akber Naqvi, the executive director at Al Masah. “Up until that point, volatility will be the only winner.”
The latest data from the oilfield services company Baker Hughes showed that the total number of US oil rigs in use has dropped to its lowest levels since the end of 2011.
Market volatility, particularly over the last quarter, resulted in onshore drilling rig activity in the US declining by 16 per cent. The US energy information administration predicts that number to drop further to 24 per cent by the end of October.
“Bottom line is the oil market is going through a significant, seismic change where the old set-up of suppliers and consumers is being turned upside-down. And that in itself needs time to play out,” said Mr Naqvi.
lgraves@thenational.ae
Follow The National's Business section on Twitter