Oil price recovery expected next year: Intl. Energy Agency

A new report released by the International Energy Agency (IEA) says global oil prices are likely to rise from current levels in 2017, though the recovery will be slow.

"We must say that today's oil market conditions do not suggest that prices can recover sharply in the immediate future - unless, of course, there is a major geopolitical event," the IEA said in its medium-term report, which usually predicts market developments for next five years, AFP reported.

The report added, "Only in 2017 will we finally see oil supply and demand aligned but the enormous stocks being accumulated will act as a dampener on the pace of recovery in oil prices when the market, having balanced, then starts to draw down those stocks."

The International Energy Agency, however, cautioned that "while oil prices should start to rise gradually once the market begins rebalancing, the availability of resources that can be easily and quickly tapped will limit the scope of rallies."

The IEA also admitted that predicting the oil market "is today a task of enormous complexity," because oil market experts are still grappling with the implications of a dramatic drop in the oil price from over USD 100 per barrel in July 2014 to around USD 30 today.

The report went on to acknowledge that a year ago, market analysts predicted that oil oversupply would end by late 2015, "but that view has proved very wide of the mark."

The IEA's report noted that oil supply to the market will eventually slow down as investment cuts prompted by low prices will lead to lower crude output in producer countries.

The IEA also projected that the money spent on oil exploration and equipment will drop by 17 percent during the current year after a 24-percent cut in 2015 "which would be the first time since 1986 that upstream investment has fallen for two consecutive years."

The IEA also predicted that overall demand for crude oil will continue to rise, but at a slower pace amid financial market turmoil and clear signs that "almost any economy you care to look at could see its GDP growth prospects downgraded."

The IEA’s report came as new projections indicate that global annual average demand will grow at an expected rate of 1.2 million barrels per day (mb/d) over the next five years, down from a 1.6 mb/d increase seen in 2015.

The IEA, however, warned that while the current supply and demand mix is preventing a price hike in the oil market, the ongoing reduction in investment in oil producing facilities may face the market with bottlenecks in the near future, and may possibly lead to sudden price spikes.

The agency stated that out of major oil producing countries, only Saudi Arabia and Iran have spare production capacity left, and other countries are not investing enough in the sector even to keep current production going, let alone meet demand growth over coming years.

"The risk of a sharp oil price rise towards the later part of our forecast (around 2021) arising from insufficient investment is as potentially destabilizing as the sharp oil price fall has proved to be," the IEA warned.

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