The IEA, which made this disclosure in its Medium Term Oil Market report released recently, stated that as a whole, oil export revenues slumped from a peak of $1.2 trillion in 2012 to $500 billion in 2015 and, if oil prices remain at current levels, this will fall in 2016 to approximately $320 billion.
According to the report, massive economic retrenchment in countries such as Algeria, Nigeria and Venezuela will reduce their ability to invest in the oil sector.
It stated: “The IEA has regularly warned of the potential consequences of the 24 per cent fall in investment seen in 2015 and the expected 17 per cent fall in 2016. In today’s oil market there is hardly any spare production capacity other than in Saudi Arabia and Iran and significant investment is required just to maintain existing production before we move on to provide the new capacity needed to meet rising oil demand. The risk of a sharp oil price rise towards the later part of our forecast arising from insufficient investment is as potentially destabilising as the sharp oil price fall has proved to be”.
It noted that global oil supply growth is plunging as an extended period of low prices takes its toll.According to the report, while U.S. light, tight oil (LTO) output is falling steeply for now, the market will begin rebalancing in 2017 and by 2021 the United States and Iran are seen leading production gains among non-OPEC and OPEC countries, respectively.
The report noted that while oil prices should start to rise gradually once the market begins rebalancing, the availability of resources that can be easily and quickly tapped would limit the scope of rallies – at least in the near term.
However, the report points to the risk of an oil price spike in the later part of the outlook period arising from insufficient investment.
“It is easy for consumers to be lulled into complacency by ample stocks and low prices today, but they should heed the writing on the wall: the historic investment cuts we are seeing raise the odds of unpleasant oil-security surprises in the not-too-distant-future,” the IEA Executive Director Fatih Birol, said while launching the report at IHS CERAWeek.
The report sees 4.1 million barrels a day (mbpd) being added to global oil supply between 2015 and 2021, down sharply from the total growth of 11 mbpd in the period 2009-2015. The drop in supply growth comes as upstream investment dries up in response to the current glut that is pressuring prices. Global oil exploration and production capital expenditures (capex) are expected to fall 17 per cent in 2016, following a 24 per cent cut in 2015 – which would be the first time since 1986 that upstream investment has fallen for two consecutive years.
The report stated: “US production is seen reaching an all-time high of 14.2 mbpd by the end of the forecast period, but only after falling in the short term. LTO output declines by 0.6 mbpd this year and by a further 0.2 mbpd in 2017 before a gradual recovery in oil prices, combined with further improvements in operational efficiencies and cost cutting, allows production to resume its upward climb. The United States remains the largest contributor to supply growth during the forecast period, accounting for more than two-thirds of the net non-OPEC increase. Freed from sanctions, Iran leads OPEC gains: Iranian oil output rises 1 mbpd to 3.9 mbpd by 2021”.
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