By Dmitry Zhdannikov and Christopher Johnson
London - The world could see a gradual easing of oil prices over the next five years due to sluggish economic growth and rising energy efficiency and as production increases steeply in Iraq and North America, the West's energy watchdog said on Friday.
The International Energy Agency, which advises industrialised nations on energy policy, cut its global oil demand growth projection for 2011-2016 by 500,000 barrels per day (bpd) compared to its previous report in December 2011.
As a result, the pressure on OPEC to produce more oil will ease dramatically and the cartel will have to cut production to no more than 31 million bpd until 2017 to balance global demand. It has been producing between 31 and 32 million bpd this year.
“Expectations of economic growth through the forecast period have been reduced amid persistent OECD debt concerns, especially in the euro zone. Even China, the main engine of demand growth in the last decade, is showing signs of slowing down,” the IEA said in its Medium-Term Oil Market Report. “Readings suggest a gradual easing of prices over the forecast period.”
London Brent crude prices fell after the IEA report, trading down $1.27 a barrel at $114.44 at 0910 GMT.
In its previous report in December 2011, the IEA said it expected global oil demand to rise by around 8 percent between 2010 and 2016 but said it saw markets becoming less tight than in previous years.
Ten months later, it paints an even more comfortable picture, saying oil demand will rise by less than 7 percent between this year and 2017, when it will reach 95.7 million bpd.
“The demand outlook looks more subdued, while the transformative power of non-conventional oil production technologies applied in shale and tight formations in North America exceeds earlier expectations,” it said.
Last year, the IEA said US production of light tight oil from shale formations was “a game-changer in the making”. This year it says the impact of the new oil streams is increasing.
Global production capacity is expected to increase by 9.3 million bpd by 2017 to 102 million bpd, effectively exceeding demand by over 6 percent.
“Around 20 percent of liquids growth comes from Iraqi capacity and 40 percent from North American oil sands or light tight oil production,” the IEA said.
OPEC will also spend heavily on boosting its spare capacity, which is projected to more than double to 5-7 million bpd, a level unseen since before the 2003-2008 oil price rally.
OPEC's spare capacity is seen as the main cushion against supply disruptions and worries about dwindling capacity have been one of the main reasons behind recent oil price spikes. - Reuters