TOKYO: Investment in new oil production is likely to fall for a third year in 2017 as a global supply glut persists, stoking volatility in crude markets, the head of the International Energy Agency (IEA) said on Thursday.
“Our analysis shows we are entering a period of greater oil price volatility (partly) as a result of three years in a row of global oil investments in decline: in 2015, 2016 and most likely 2017,” IEA director general Fatih Birol said, speaking at an energy conference in Tokyo.
“This is the first time in the history of oil that investments are declining three years in a row,” he said, adding that this would cause “difficulties” in global oil markets in a few years.
Oil prices have risen to their highest in nearly a month, as expectations grow among traders and investors that Opec will agree to cut production, but market watchers reckon a deal may pack less punch than Saudi Arabia and its partners want.
The Organisation of the Petroleum Exporting Countries (Opec) meets next week to try to finalise to output curbs.
“Our analysis shows that when prices go to $60, we’ll make a big chunk of US shale oil economical and within the nine months to 12 months of time, we may see a response coming from the shale oil and other high-cost areas,” Birol told Reuters, speaking in an interview on the sidelines of the conference.
“And this may again put downward pressure on the prices.” Brent crude stood around $49 a barrel on Thursday.
Birol said that level would be enough for many US shale companies to restart stalled production, although it would take around nine months for the new supply to reach the market.
The IEA director general said it is still early to speculate what Donald Trump’s presidency in the United States will have on energy policies.
“Having said that, both US shale oil and US shale gas have a very strong economic momentum behind them,” Birol said.
“Shale gas has significant economic competitiveness today, and we think it will be so in the next years to come.”