LONDON-A rout in oil prices is likely to continue into the first
half of 2015 unless global output is reduced, the International
Energy Agency said Friday.
Crude prices have fallen around 30% since June to hover near
four-year lows amid sluggish demand growth and a surplus of oil
supply as a result of booming production in North America. Though
the IEA expects demand growth to pick up throughout next year after
falling to its weakest level in five years in 2014, it forecasts
demand will fall steeply at the start of 2015 compared to the end
of this year. Meanwhile, robust oil supply shows no sign of
abating.
"Supply/demand balances suggest that the price rout has yet to
run its course. Our supply and demand forecasts indicate that
barring any new supply disruption, downward price pressures could
build further in the first half of 2015," the IEA said in its
closely watched monthly oil market report.
The sharp slide in prices has shifted focus to the meeting of
the Organization of the Petroleum Exporting Countries scheduled for
later this month. In the past, the group of 12 major oil producers
has acted to balance the market, reining in output when prices
fell. However, during the recent slide in prices OPEC has yet to
indicate that it has plans to respond in a coordinated way.
According to the IEA, OPEC's output fell by 150,000 barrels a
day in October as small reductions from several of the group's
members offset higher output from Libya. However, overall
production of 30.6 million barrels a day still remained well above
the group's agreed output ceiling of 30 million barrels a day-the
sixth month in a row that the group has over-produced, the IEA
said.
If OPEC doesn't act to cut its output, the sustained decline in
oil prices could put pressure on higher-cost producers elsewhere.
Earlier this week, the IEA's chief economist Fatih Birol said that
if oil prices remain around $80 a barrel, investment in U.S. shale
projects will likely fall by 10% next year. However, lower
investment won't necessarily translate into a quick decline in
production as efficiency gains and cost-reductions should make up
for it in the short term, the IEA said.
"Should prices continue to fall, however, medium‐ and long‐term
production may fall as companies forego development of costly
projects," it added.
Write to Sarah Kent at sarah.kent@wsj.com
Subscribe to WSJ: http://online.wsj.com?mod=djnwires