Don't write oil's 'obituary', IEA says in long-term demand forecast

Oil market could tip out of balance on rising non-Opec production

Once U.S. production from shale and tight oil plays plateaus and non-OPEC production as a whole declines in the late 2020s, the Middle East once again becomes the primary supplier.

The International Energy Agency on the other hand is saying that global oil demand growth is likely to increase more slowly over the coming months, doubling down on their previous underestimation demand, because of their prediction that warmer temperatures will cut consumption, which may tilt the market back into surplus in the first half of next year.

"It is far too early to write the obituary of oil, as growth for trucks, aviation, petrochemicals, shipping and aviation keep pushing demand higher", said Fatih Birol, executive director of the Paris-based IEA.

Oil fell by more than $1 in morning trading in NY after the International Energy Agency reported that recent increases in the oil price and milder-than-normal weather had dampened demand growth. The IEA noted the US shale sector's history of beating expectations; the shift to electric vehicles putting downward pressure on oil demand; and changes in estimates of recoverable shale reserves.

The U.S. industry "has emerged from its trial-by-fire as a leaner and hungrier version of its former self, remarkably resilient and reacting to any sign of higher prices caused by OPEC's return to active market management", the IEA said. Two recent reports point to an improved oil patch outlook.

Reflecting the expected flood of supply, the agency cut its forecasts for oil prices to $83/bbl for 2025 from $101 previously, and to $111 for 2040 from $125 before.

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Overall global energy needs are seen rising more slowly than in the past, but are still projected to expand by 30 per cent between today and 2040. The world will use just over 100 MMbopd by 2025. USA crude was also off 1.1%, to $56.15.

If the assumptions do hold, the USA will find itself in a very rare position.

Sparked by technological advances from its shale fields, US production will see growth of 8M bbl/day during 2010-25, accounting for 80% of the increase in global supply over the period, the report says. But the oil market isn't tightening as quickly as once anticipated, the IEA said in its monthly oil-market report.

If US production stays at current levels, the IEA said, and a trend towards adopting electric cars accelerates, prices could stay between US$50 and US$70 a barrel until 2040.

"There could be further surprises ahead", the IEA said.

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