Presumably, low oil prices have cut incentives for production. International Energy Agency (IEA) experts say this will chop production to a two-decade low. However, OPEC is expected to keep its status quo, and keep up pumping.
In its Oil Market Report for September, IEA management wrote:
Low price seen triggering largest cut in non-OPEC supply in more than two decades, raising “call” on OPEC in 2016
Also:
Lower output in the United States, Russia and North Sea is expected to drop overall non-OPEC production to 57.7 mb/d. US light tight oil, the driver of US growth, is forecast to shrink by 0.4 mb/d next year.
OPEC crude supply fell by 220 000 barrels per day (220 kb/d) in August to 31.57 mb/d, led by declines in Saudi Arabia, Iraq and Angola. The group’s output stood 1.2 mb/d higher than a year earlier. The “call” on OPEC climbs to 31.3 mb/d in 2016, up 1.6 mb/d year-on-year as lower prices dent non-OPEC supply and support above-trend demand growth.
Global oil demand growth is expected to climb to a five-year high of 1.7 mb/d in 2015, before moderating to a still above-trend 1.4 mb/d in 2016 thanks to lower oil prices and a strengthening macroeconomic backdrop.
Two other factors will affect oil prices. One is that low prices also have begun to cut into exploration activity, which could change previously planned supply for years. The other is that a soft economy in China will affect demand. These will offset, to some unpredictable extent, where oil prices will head.
This forecast, and others, have not prevented oil from continuing to drop or firms such as Goldman Sachs from predicting further drops. Saudi Arabia has refused to meet with other OPEC nations about how to stop the downward prices in oil, pushing crude even lower.
The IEA report supports the probability of higher prices in 2016. The real market, where prices are ultimately set, is not cooperating.
ALSO READ: Crude Oil Price Dips as Inventory Rises, but Refineries Slow Down
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