Drop in Investments Could Tighten Oil Supplies

Drop in Investments Could Tighten Oil Supplies
Drop in Investments Could Tighten Oil Supplies

Countries should not bank on oil prices remaining low when formulating their energy policies, as supplies could tighten from mid-2016 due to a drop in investment and falling US output, a senior industry official said on Monday.

“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 International Energy Agency, said at the Singapore International Energy Week, Reuters reported.

If prices continued at current levels, oil investment was likely to decline again in 2016, mainly in high-cost regions, after sliding this year by more than a fifth, said Birol, who took over the top post at the Paris-based IEA in September.

“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.”

US production of light tight oil production had peaked and was expected to decline by 400,000 barrels per day in 2016, he added, tightening supplies further.

Birol said geopolitical risks in the Middle East that could disrupt supplies remained, although a lifting of sanctions on Iran could boost production by 400,000-600,000 barrels per day within a year.

Still, he added that oil supplies were ample until at least mid-2016 and the IEA did not expect a strong price rebound in the short term.

On liquefied natural gas, Birol said supplies would be ample as the market will expand to 500 billion cubic meters around 2020 with new production in Australia and the US.

Asked about the possibility of China or India joining the IEA, Birol said he hoped ministers from both countries would be at a Nov. 17-18 ministerial meeting in Paris as special guests “which will strengthen the ties we have with those countries.”