Oil prices will only partially recover, below US$100 highs of recent years, says IEA

PARIS (AFP) - Global oil prices will recover only partially from their spectacular lows of last year, which can be expected neither to spur economic growth nor kill off US shale production, the International Energy Agency said Tuesday.

Citing a major shakeup in the oil markets, the IEA said in its five-year forecast that crude prices will recover from current levels of around US$50-US$55 per barrel to US$73 per barrel in 2020.

That level is considerably below the more than US$100 price tags reached before they began to fall last June.

"The global oil market looks set to begin a new chapter of its history, with markedly changing demand dynamics, sweeping shifts in crude trade and product supply, and dramatically different roles for OPEC and non-OPEC producers in regulating upstream supply," the IEA said.

Ample supply and subdued demand caused oil prices to tumble as much as 60 per cent, but the IEA said it sees market rebalancing occurring "relatively swiftly" with increases in inventories halting mid-year and the market tightening.

However the IEA foresees "prices stabilising at levels higher than recent lows but substantially below the highs of the last three years".

The sharp fall in oil prices has cheered oil-consuming nations as lower fuel prices usually translate into stronger economic growth.

But the IEA said the net impact "will be more modest than might be expected" because of a lingering hangover from the global economic crisis in 2008 and weak investment.

"Oil price declines against a backdrop of slowing demand growth will not be as potent an economic stimulus as they would be in a context of strong underlying income gains," said the Paris-based agency, which advises industrial nations on energy policies.

It noted that despite the oil price decline the IMF last month revised downward its forecast for global growth this year to 3.5 per cent from the 3.8 per cent it predicted in October. It lowered its 2016 forecast to 3.7 per cent from 4.0 per cent.

The drop in oil prices was accelerated by OPEC's decision in November not to cut production, saying it did not want to cede market share. Analysts saw this as an attempt to drive out higher priced competitors, particularly US shale or "LTO" oil output that has been the largest source of new supply to the market in recent years.

It was uncharacteristic as the 12-nation cartel that supplies 30 per cent of global crude has usually played the role of swing producer, reducing output in case of excess supplies on the market so that prices stabilise.

"OPEC's move to let the market rebalance itself is a reflection of... how shale oil has changed the market," said IEA Executive Director Maria van der Hoeven.

"It may have effectively turned LTO into the new swing producer, but it will not drive it out of the market," she said. "LTO might in fact come out stronger."

The IEA sees US shale oil production growth slowing to a trickle this year, but quickly bouncing back, to post a 50 per cent rise from 2014 levels to hit 5.2 million barrels per day (mbd) in 2020.

Overall, the IEA sees non-OPEC output rising modestly to 60 mbd in 2020, which is a drop of 1.4 mbd from its previous mid-term forecast.

Global demand is forecast to rise from 92.4 mbd in 2014 to 99.1 mbd in 2020, 1.1 mbd below its previous forecast.

However Russia is unlikely to emerge unscathed.

"Russia, facing a perfect storm of collapsing prices, international sanctions and currency depreciation, will likely emerge as the industry's top loser," the IEA said.

The agency last June saw Russian output continuing to climb, but now it sees production having peaked at 10.97 mbd in 2013 and sliding by 5.5 per cent to 10.37 mbd in 2020.

Because of lower oil prices, many of the deposits that Russia was hoping to tap in its far north and Arctic regions will not be profitable, and Western sanctions have cut access to needed technology and finance.