Yemisi Izuora/Agency Report
Lower oil prices may likely compel non-OPEC producers including the United States to cut output by the steepest rate in more than two decades next year, rebalancing an oversupplied oil market, the International Energy Agency said at the weekend.
The IEA, which advises the world’s biggest economies on energy policy, said global oil demand was poised to climb to a five-year high this year thanks to lower prices. It steeply revised its outlook for demand for oil from the Organisation of the Petroleum Exporting Countries.
The report is one of the most bullish for OPEC since the group shocked markets last year by deciding against cutting production, choosing to fight for market share and depress the output of higher-cost producers such as the United States.
“The big story this month is one of tightening supply, with the spotlight firmly fixed on non-OPEC,” the IEA said in its monthly report. “Oil’s price collapse is closing down high-cost production from Eagle Ford in Texas to Russia and the North Sea, which may result in the loss next year of half a million barrels a day – the biggest decline in 24 years.”
The projected drop in output would be the largest since 1992, when non-OPEC supply contracted by 1 million barrels per day (bpd) from the previous year, with the collapse of the former Soviet Union.
The IEA said it now expected U.S. light, tight oil production to shrink by 0.4 million bpd next year after expanding by a record 1.7 million bpd in 2014. Meanwhile, global oil demand growth is expected to climb to a five-year high of 1.7 million bpd or 1.8 percent in 2015, before moderating to a still-above-trend 1.4 million in 2016 – 0.2 million more than in the previous IEA report. In 2014, growth stood at a five-year low of 0.8 million bpd.
As a result, the world would need much more crude from OPEC, the IEA said. It estimated that the group would need to pump around 31.3 million bpd in 2016 – 0.5 million bpd more than the forecast in the previous IEA report – to balance the market.
In the second half of 2016, OPEC would need to pump some 32 million bpd – the first time the world would require more oil than the group currently produces. OPEC, led by Saudi Arabia, has been pumping much more oil than the market needed over the past year, resulting in global oversupply and a price crash.