VINACHEM

The global oil market will begin rebalancing in 2017 with supply and demand aligning, although current enormous stockpiles will dampen the pace of any recovery in pricing, according to the International Energy Agency (IEA) on Monday.

In the 2016 edition of its Medium-Term Oil Market Report, which the IEA’s executive director Fatih Birol will formally launch later today at the CERAWeek energy conference in Houston, the organisation also said by 2021, the US and Iran will lead the production gains among non-OPEC and OPEC countries, respectively.

“The report sees global oil demand growing at an average rate of 1.2m bbl/day through 2021, crossing the symbolic 100m bbl/day mark towards the end of the decade before reaching 101.6m bbl/day by 2021,” the IEA said.

US production is predicted to reach an all-time high of 14.2m bbl/day by the end of the forecast period (2021), but only after falling in the short term – with light, tight oil (LTO) output declining 600,000 this year and by a further 200,000 in 2017 before a gradual recovery in oil prices.

“The US remains the largest contributor to supply growth during the forecast period, accounting for more than two-thirds of the net non-OPEC increase,” the IEA said.

Iranian oil output, meanwhile, is forecast to rise 1m bbl/day to 3.9m bbl/day by 2021.

The IEA also warned in its report that a lack of investment in new supply could lead to a sharp rise in prices between 2017 and 2021, as it poses supply security risks down the road.

The report said once the market begins to rebalance, oil prices should start to rise gradually as the availability of resources “that can be easily and quickly tapped will limit the scope of rallies” although also noted there is a “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,” said Birol

The IEA’s report said 4.1m bbl/day is expected to be added to global oil supply between 2015 and 2021 – down sharply from the total growth of 11m bbl/day between 2009-2015.

This drop in supply is forecast as upstream investment dries up in response to the current glut that is pressuring prices – earlier this year crude oil prices for WTI and Brent fell below $30/bbl for the first time since 2003, having halved in just a few months.

The Medium-Term Oil Market report also expects global oil exploration and production capital expenditures (capex) to fall 17% in 2016, following a 24% cut in 2015 – the first time since 1986 that upstream investment has fallen for two consecutive years.