US oil output ‘party’ to last till 2020: IEA

Prices to stabilise below highs of last three years

London —The US will remain the world’s top source of oil supply growth up to 2020, even after the recent collapse in prices, the International Energy Agency said, defying expectations of a more dramatic slowdown in shale growth.

The agency also said in its Medium Term Oil Market report that oil prices, which slid from $115 a barrel in June to a near six-year low close to $45 in January, would likely stabilise at levels substantially below the highs of the last three years.

Oil prices deepened their decline after the Organisation of the Petroleum Exporting Countries in November shifted strategy and declined to cut its own output, choosing to retain market share that has been eroded by rival supply sources such as US shale oil.

But IEA executive director Maria van der Hoeven, launching the report in London, said while Opec may win back some customers while prices are low, it would not regain the market share it held before the 2008 financial crisis. “This unusual response to lower prices is just one more example of how shale oil has changed the market,” she said in a statement.

The report said supply growth of US light, tight oil (LTO) will initially slow to a trickle but regain momentum later, bringing its production to 5.2 million barrels per day (bpd) by 2020. Total US supply increases by 2.2 million bpd to 14 million bpd in 2020, with most of the expansion due to LTO.

“The price correction will cause the North American supply ‘party’ to mark a pause; it will not bring it to an end,” said the IEA, which advises industrialised countries on energy policy.

The outlook for output in Russia is less optimistic. “Russia, facing a perfect storm of collapsing prices, international sanctions and currency depreciation, will likely emerge as the industry’s top loser,” it said, forecasting production looked set to contract by 560,000 bpd to 10.4 million bpd from 2014 to 2020.

Partly as a result of lower non-Opec output, the IEA predicted global demand for Opec crude will rise in 2016 to 29.90 million bpd, after holding at 29.4 million bpd this year. Reflecting the rise of shale and slowing demand in the West, Opec’s market share has fallen to less than 30 per cent this year from more than 40 per cent in 2008, the IEA said.

The IEA expects global growth in oil demand to accelerate to 1.13 million bpd in 2016 from 910,000 bpd in 2015. Still, it saw the price decline as having a marginal impact on demand growth for the rest of the decade.