Non-OPEC oil supply will shrink next year by nearly 500,000 barrels a day — the biggest decline in more than two decades — with U.S. producers “bearing the brunt” of the oil price rout, the International Energy Agency said Friday.
U.S. crude prices have rebounded since crashing last month to less than $40 a barrel for the first time since the financial crisis. But in its latest monthly oil market report, the IEA said light tight oil supply, the engine of U.S. production growth, could fall by nearly 400,000 barrels a day next year.
“U.S. oil production is likely to bear the brunt of an oil price decline that has already wiped half the value off Brent [crude[,” the influential energy monitor predicted. “After expanding by a record 1.7 million barrels a day in 2014, the latest price rout could stop U.S. growth in its tracks.”
The Wall Street Journal said the IEA’s forecast was “among the gloomiest” for American oil production to emerge since the August price crash. U.S. government forecasters have also predicted a sharp drop in output over the coming 12 months.
The IEA also noted that any U.S. decline could give OPEC — led by Saudi Arabia, the world’s largest crude exporter — more leverage over the market in 2016. High-cost projects may also be at risk in OPEC nations but Saudi Arabia, Iraq, and the UAE have been producing at or near record rates.
“On the face of it, the Saudi-led OPEC strategy to defend market share regardless of price appears to be having the intended effect of driving out costly, ‘inefficient’ production,” it said.
The IEA also says the oil price decline will affect Russia and the North Sea, with overall non-OPEC production expected to drop to 57.7 million barrels a day in 2016. Unless prices recover, lower-cost OPEC producers would need to turn up the taps during the second half of 2016 to keep the market in balance.
Low oil prices are also boosting demand, and the IEA predicts demand will grow to a five-year high of 1.7 barrels per day this year and an above-trend 1.4 barrels per day in 2016.