Oil prices to experience partial rebound — IEA report

17 February 2015, Lagos – Global oil prices will recover only partially from spectacular lows, which are unlikely to spur economic growth or kill off United States, U.S. shale gas production, the International Energy Agency, IEA, has said.

The IEA said in its five-year forecast that crude prices will recover from around their current range of $50-60 per barrel, but will remain well below the level of more than $100 per barrel seen before the slump began last June.

“While there have been drops and price corrections roughly every 10 years since the 1970s, there has never been a situation like we are facing today,” IEA’s Executive Director, Ms. Maria van der Hoeven, said in London following the release of the report.

“The global oil market looks set to begin a new chapter of its history, with markedly changing demand dynamics, sweeping shifts in crude trade and product supply, and dramatically different roles for Organisation of the Petroleum Exporting Countries, OPEC, and non-OPEC producers in regulating upstream supply,” the report said.

Ample supply and subdued demand caused prices to fall as much as 60 percent, but the IEA said market rebalancing could occur “relatively swiftly” with increases in inventories halting mid-year and the market tightening. However the IEA foresees “prices stabilising at levels higher than recent lows but substantially below the highs of the last three years.”

The sharp fall in oil prices has cheered oil-consuming nations as lower fuel prices usually translate into stronger economic growth.

The IEA cautioned that the net impact “will be more modest than might be expected” because of a lingering hangover from the global economic crisis in 2008 and weak investment.

“Oil price declines against a backdrop of slowing demand growth will not be as potent an economic stimulus as they would be in a context of strong underlying income gains,” said the agency.

It also noted that despite the oil price decline the IMF last month revised downward its forecast for global growth this year to 3.5 percent from the 3.8 percent it predicted in October.

The drop in oil prices was accelerated by OPEC’s decision in November not to cut production, saying it did not want to cede market share. Analysts saw this as an attempt to drive out higher priced competitors, particularly US shale or “LTO” oil output that has been the largest source of new supply to the market in recent years.

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