IEA warns of risk of oil price spike in medium-term

The recent sharp drop in crude oil prices, while welcome by consumers, raised the risk of a spike in prices in the medium-term due to insufficient demand, according to the rich-world´s energy watchdog.

Global supplies of oil would grow by 4.1m barrel per day between 2015 to 2021, far less than the 11m b/d jump seen over 2009-2015, the International Energy Agency estimated in its annual Medium-Term Oil Market Report.

“It is easy for consumers to be lulled into complacency by ample stocks and low prices today, but they should heed the writing on the wall: the historic investment cuts we are seeing raise the odds of unpleasant oil-security surprises in the not-too-distant-future,” said IEA Executive Director Fatih Birol, launching the report at IHS CERAWeek.

As of 14:10GMT front month Brent crude futures were up by 4.2% to $34.44 per barrel and West Texas Intermediate by another 4.22% to $33.15 per barrel on the ICE.

Investment in exploration and production would decline by 17% in 2015, the IEA forecast, following a 24% drop in 2015.

That would mark the first back-to-back fall in upstream investment, or capital expenditures, since 1986.

According to the IEA, global oil demand would grow at an average pace of 1.2m b/d through 2021, reaching 101.6m b/d in that last year.

Demand from India would race ahead as more motorists took to the road, while in China a cooling economy would soften demand growth.

America was still seen supplying the bulk of increased supplies, contributing two-thirds of the projected increase from outside of the Organisation of Petroleum Exporting Countries.

However, supplies of US light-tight oil were first expected to fall by 0.6m b/d in 2016 and by another 0.2m b/d in 2017, before a recovery in oil prices - together with further cost-cutting and gains in operational efficiencies - led to renewed growth in production.

Iranian output was seen rising by 1m b/d to 3.9m b/d by 2021.