The short term forecast for the world crude oil situation was laid out this week by the International Energy Agency in its annual Medium-Term Oil Market Report .

Below are some highlights from the report.

To read the speech by IEA executive director Maria .van der Hoeven delivered at the launch of the report, click here.

To see the presentation that accompanied the speech, click here.

To read the executive summary of the report, click here.

The presence of US shale oil (referred to as light oil, tight oil or LTO by the IEA), has dramatically changed the supply and demand characteristics for world crude oil markets. The LTO revolution has made non-OPEC oil production more responsive to price swings than during previous oil market crashes and this will likely set the stage for a relatively swift recovery for oil prices over the next year or so.

In the words of the IEA: “US LTO has changed the rules of the game….OPEC’s move to let the oil market rebalance itself is a reflection of that fact. It may have effectively turned LTO into the new swing producer, but it will not drive it out of the market. LTO might in fact come out stronger.”

As oil producers world-wide continue to cut their production spending, oil supply will grow far more slowly than previously projected by the IEA. However, growth in US LTO supply is expected to regain momentum by the end of this decade as oil prices recover, and North America remains a top source of oil supply growth for the remainder of the decade. In contrast, Russia faces a perfect storm of lower oil prices, sanctions and currency swings, pushing its oil production into contraction. As a result, Russia will be hit quite hard by changing oil markets. OPEC’s share of global oil supply will inch up from recent lows but will not recover to the levels enjoyed before the surge in US shale oil supply.

Global demand for crude oil is now expected to grow slightly faster than supply capacity, causing the oil market to gradually tighten  from 2016 onwards. While there will be a rebalancing of oil markets, the rebalancing may not be what we have come to expect. “This time around it is not business as usual.”

According to the IEA, 90% of all future OPEC oil supply growth will come from one country, Iraq. This supply source will be at significant risk as geopolitical instability in that country persists.

In the final analysis: “North America’s unconventional production will loom even larger in total world supply of oil than before the price drop.”

 

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