Slow growth could keep oil prices low ‘for rest of decade’

The EIA made only minor changes to its global demand forecasts, marginally increasing this and next year’s forecasts to maintain a roughly 1.5 percent increase in both years.

Benchmark WTI crude futures slipped to a two-week low at $43.55 a barrel in early trading before trimming losses to trade down 59 cents at $43.62 a barrel by 1211 GMT (07:11 a.m. EST). Although less likely than its base case, it warned that a new oil market equilibrium may emerge “at prices in a $50 to $60 per barrel range that last until well into the 2020s before edging higher to $85 per barrel in 2040”. Chevron (NYSE:CVX) said last month that it sees spending reductions through 2018, and Statoil (NYSE:STO) this month forecast oil holding to a $50-per-barrel price until 2018.

Consumption will then slow from 2020 because of rising oil prices, efforts to phase out fuel subsidies, energy efficiency policies and increased used of alternative fuels. The agency projected that an annual average of $630 billion investment is required “just to compensate for declining production at existing fields and to keep future output flat at today’s levels”. As crude oil prices have fallen almost 60 percent globally, many American communities that became dependent on oil revenue are preparing for hard times.

Mr. Birol added that energy companies should learn from the current market conditions, as in the past 25 years, the crude oil industry has not experienced investment budget cuts expected in the two consecutive years.

The agency does not see oil prices reaching $80 a barrel until 2020, but says it is also considering situations where the price could stay lower for much longer. “We expect the market will recover by itself because high-cost production will continue to decline”.

According to Business Insider, economist Gary Shilling noted that this production dynamic of the USA and OPEC could send oil prices dropping to $10 to $ 20 per barrel. Lowered crude oil prices will help the Middle East crude oil producers to secure high market share in the short term.

Unable to break-even at the lower price of oil, many USA producers have either cut back on production or closed rigs entirely, showing that the OPEC strategy could be working.