IEA: Prolonged OPEC Focus on Market Share, Sluggish Global Growth Could Mean $50 Oil Though 2020

IEA says $50 through 2020 can not be ruled out.

In a new report outlining global energy concerns and needs over the next few decades, the International Energy Agency (IEA) predicts oil will most likely rebound to $80 per barrel by 2020, but a scenario in which it stays close to $50 per barrel in that time can not be ruled out.

This lower for longer trajectory would be brought about by lower near-term growth in the global economy, a prolonging of the current strategy by the Organization of Petroleum Exporting Countries (OPEC) to focus on market share rather than price, and a resilient non-OPEC supply, particularly from US tight oil.

"The oil price in this scenario remains close to $50/bbl until the end of this decade, before rising gradually back to $85/bbl in 2040," said the IEA.

Such a scenario would also mean the Middle East's share in the oil market would be higher than at any time in the last forty years.

The agency also noted that such a concentration of global supply "would be accompanied by elevated concerns about energy security, with Asian consumers – the final destination of a huge share of regionally-traded oil – particularly vulnerable."

Meanwhile, the IEA predicts that India will eventually become the chief global consumer of oil, requiring 10 million barrels per day (bpd) by 2040; China will double the U.S. in total energy consumption by 2040 but will require 85 percent less energy to generate economic growth, thanks to a shift away from heavy industry.

While the agency believes world energy demand will grow by nearly one-third between 2013 to 2040 (due entirely to developing countries) and that an "energy transition" leaning towards renewables is already underway, it theorizes that low oil prices could do away with the long-term cost savings of efficient technologies and thus "undercut this crucial pillar of the energy transition."

Fatih Birol, executive director for the IEA, said, "It would be a grave mistake to index our attention to energy security to changes in the oil price.

"Now is not the time to relax. Quite the opposite: a period of low oil prices is the moment to reinforce our capacity to deal with future energy security threats."

The report's outlook dovetails concerns raised in September by Keisuke Sadamori, IEA director for energy markets and security, who warned that a decline in investment in non-OPEC countries is likely to draw emphasis back to OPEC producers.