Oil dips as rising Iranian output to counter falling US shale production

Low export revenues, and investment in the oil sector, amid higher future crude oil demand, are the main factors that could drive a recovery in the crude oil market in 2017, added IEA.

The global surplus will last at least into 2017, but supply growth is plunging as the period of low prices “takes its toll”, the International Energy Agency (IEA) said Monday.

Tuesday’s dips came after strong gains in the previous session on the back of an expected fall in U.S. oil production this year.

Crude oil supply growth is forecast at 4.1 million barrels a day for the six-year period, sharply lower than the 11 million barrel per day growth that occurred between 2009 and 2015.

Oil prices have tumbled 70 percent since mid-2014, and gasoline prices have followed. The same experts now think that USA production, along with new supplies from Iran, which has been freed from global sanctions, will blunt what otherwise might be a sharper run-up in prices.

The global oil glut will continue this year, putting downward pressure on crude prices, according to the International Energy Agency.

Global markets have been awash with oil following the boom in shale energy production in the US. It’s only 2018 that the IEA’s base case forecast suggests the record-high inventories will drop, by about a quarter-million barrels a day.

Further supporting oil prices at the beginning of this new trading week has been continuing speculation from the past few weeks over a proposed OPEC/non-OPEC output freeze that could potentially help limit production around January’s already-elevated output levels.

“Although traders may be buying on the (US shale) news, we note that the view that falling U.S. drilling rig counts would translate into a drop in output has been in wide circulation for more than 12 months and so this latest report is really just recycling this established theme”, said Tim Evans of Citi Futures. There is “hardly any spare production capacity other than in Saudi Arabia and Iran”, the organization pointed out, stressing the importance of maintaining investment to prevent a significant oil demand increase from causing a destabilizing shortfall in supply.

“Light, tight oil output declines by 600,000 barrels this year and by a further 200,000 in 2017 before a gradual recovery in oil prices, combined with further improvements in operational efficiencies and cost cutting, allows production to resume its upward climb”, the IEA predicted.

As a result of the increase in demand and weaker growth in supply, OPEC’s share of the total market for crude will reach 33.8 percent in 2020, up from last year’s projection of 32.4 percent.