Oil price edges lower on anticipated United States production rise

"The US will be undisputed leader of global oil and gas markets for decades to come", International Energy Agency executive director Fatih Birol said Tuesday in an interview with Bloomberg Television.

"A remarkable ability to unlock new resources cost-effectively pushes combined United States oil and gas output to a level 50% higher than any other country has ever managed; already a net exporter of gas, the USA becomes a net exporter of oil in the late 2020s", the IEA said in its 2017 world energy report.

"The reality is that even after some modest reductions to growth, non-OPEC production will follow this year's 700,000 bpd growth with 1.4 million bpd of additional production in 2018 and next year's demand growth will struggle to match this", it's monthly report read.

"The oil market should be able to find a longer-term equilibrium, with the oil price in a range of $50-70 a barrel", the agency said.

Worldwide, oil consumption is seen reaching 97.7 million bpd in 2017, up 1.5 million bpd from 2016.

The IEA said oil production will be driven by continued growth in energy-hungry industries.

The International Energy Agency predicted Tuesday that a dramatic increase in shale production will transform the US into the world's largest exporter of liquefied natural gas by the mid-2020s.

While the IEA's base-case scenario projects oil prices reaching US$83 per barrel by 2025 and as high as US$111 by 2040, a low oil-price scenario could see prices stuck in the US$50 to US$70s if electric passenger cars take off, USA tight oil production continues to rise and upstream costs decline. The IEA estimates that there will be 50 million electric vehicles on the road by 2025 and 300 million by 2040, from closer to 2 million now. Bloated global petroleum inventories were reduced by 40 million barrels after Hurricane Harvey, pushing stockpile levels in wealthy nations below 3 billion barrels for the first time since 2014.

But stringent fuel-efficiency measures for cars and trucks, and a shift that sees one-in-four cars being electric by 2040, mean that China is no longer the main driving force behind global oil use - demand growth is larger in India post-2025.

Christopher Kuplen, BofAML's Research Analyst, argues that since 55 per cent of global oil is consumed in transportation, of which more than half by passenger vehicles, the demand for oil would eventually fall.

Under the IEA's New Policies Scenario, based on existing legislation and announced policy intentions relative to emissions and climate change, the oil price should continue to rise toward $83 a barrel by the mid-2020s.

Also weighing on the oil price, is the increasing prospect of a slower pace of economic growth in China.

Vanessa Coleman

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