At a time of uncertainty created by the precipitous fall in oil prices and oversupply, the International Energy Agency (IEA) said on Monday that prices could go up from mid-2016 with supplies tightening due to a drop in investment and falling US output.
“It will be a great mistake to index our attention to oil security, to the oil price trajectory in the short term,” Fatih Birol, executive director of the IEA said at the Singapore International Energy Week.
Global crude oil prices have fallen below the psychological $50-a-barrel mark from well over $100 in the last fifteen-month period, affecting revenues of oil exporting countries as well as investments in oil exploration and production.
Birol said if prices continued at current levels, oil investment was likely to decline again in 2016, mainly in high-cost regions, after falling this year by more than a fifth.
“If it comes true, this will be the first time in two decades we will see oil investments declining for two consecutive years,” he said.
“One should think about medium- and long-term implications of this lack of investments,” he added.
In late 1985, oil prices slumped to $10 from around $30 over five months as the Organisation of Petroleum Exporting Countries (OPEC) raised output to regain market share following an increase in non-OPEC production.
Birol, who took charge of the IEA last month, said geopolitical risks remained in the Middle East that could disrupt supplies, though a lifting of sanctions on Iran could boost production by 400,000-600,000 barrels per day (bpd) within a year.
He said the US production of light oil production had peaked and was expected to decline by 400,000 bpd in 2016, tightening supplies further.
On liquefied natural gas (LNG), Birol said ample supplies are projected as the market will expand to 500 billion cubic metres around 2020 with new production in Australia and the United States.
Most of the investment in renewables would be in emerging economies led by China and India, he added.
Birol also said China and India, both of which are not IEA members, have been invited at a November 17-18 ministerial meeting in Paris as special guests “which will strengthen the ties we have with those countries”.
The IEA’s World Energy Outlook 2015, to be released next month, also has an indepth analysis of India’s energy outlook.
“How India’s energy sector develops over the coming decades will have profound implications both for the country’s own prospects and for the global energy system is a whole,” the IEA said on its website.