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IEA Reiterates Underinvestment Risk

By on 22 Feb 2016 in news, notable posts

china oil demand

(The Fuse) Today at IHS CERAWeek in Houston, Texas, the International Energy Agency (IEA) released the 2016 Medium Term Oil Market Report, urging that consumer countries not be drawn into a false sense of complacency given the current low prices and the global glut in supply—even as the likelihood of a price spike in the medium-term remain slim. Last year, oil capital expenditures (capex) declined by 24 percent, and this year we expect an additional 17 percent. This is historic, because in the last 30 years we have never seen oil investment decline in two consecutive years. “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,” said IEA Executive Director Fatih Birol. “The historic investment cuts we are seeing raise the odds of unpleasant oil-security surprises in the not-too-distant-future. Last year, oil capital expenditures (capex) declined by 24 percent, and this year we expect an additional 17 percent. This is historic, because in the last 30 years we have never seen oil investment decline in two consecutive years. If there was a drop one year, the next year there was a rebound. We expect this drop to have both short and long term implications for oil markets.” He added that the bulk of cuts have occurred in the United States.

Last year’s report began: “Looking at the medium-term consequences of this latest price plunge, the real question is not so much how price and supply growth expectations have been reset; nor whether a rebalancing of the market will occur—for that is inevitable. The issue is how that necessary rebalancing, and the price recovery that will accompany it, might depart from those that followed similar price drops in the past, and where they will leave the market after they run their course.” However, IEA’s latest dampens the expectations of a rocky rebalancing expressed just one year ago. This year’s report states, “We must say that today’s oil market conditions do not suggest that prices can recover sharply in the immediate future,” and added that in addition […]

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