Market Rebalance Could Contain Price Spikes Due to Investment Declines: IEA

IEA calls current industry investment cuts "historic" and a major concern.

The International Energy Agency (IEA) says in its annual Medium-Term Oil Market Report that the global market will begin to rebalance next year and that by 2021 the U.S. and Iran will lead production gains amongst non-Organization of the Petroleum Exporting Countries (OPEC) and OPEC countries, respectively.

The report points to plunging global oil supply growth as the trigger for the recovery, with 4.1 million barrels per day (bpd) predicted as being added to global supply between 2015 and 2021; this is down significantly from the total growth of 11 million bpd between 2009 and 2015.

The report also predicts that global oil exploration and production capital expenditures will fall 17 percent this year, on the heels of a 24 percent cut in 2015.

If this prediction proves correct, it would be the first time since 1986 that upstream investment has fallen for two consecutive years.

The report notes that Iranian oil output will lead OPEC gains during the forecast period, with a 1 million to 3.9 million bpd rise by 2021; U.S. production "remains the largest contributor to supply growth during the forecast period, accounting for more than two-thirds of the net non-OPEC increase."

However, the report warns that an oil price rally will be limited in the near term due to resources "that can be easily and quickly tapped", and that an oil price spike in the later part of the forecast period could occur.

Fatih Birol, executive director for the IEA, explained, "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 a year ago predicted that oil prices for 2015 would stay around $55 per barrel, recovering gradually to hit $73 per barrel by 2020.