IEA Oil Prices Could Rise Further As Shale Can’t Fill The Gap
U.S. shale will continue its breakneck growth rate into 2019, despite bottlenecks, but the oil market still faces serious supply risks from the potential losses from Venezuela and Iran, the International Energy Agency (IEA) said in a new report.
The IEA said that the run up in oil prices in the last few months dampened oil demand growth, although the agency left its forecast for oil demand growth unchanged at 1.4 million barrels per day, after downgrading that estimate last month. Subsidies and price regulation in a growing number of countries, intended to blunt the impact of rising fuel prices, could keep demand growth on track, despite oil prices trading significantly higher than, say, a year ago.
Looking ahead to 2019, the IEA thinks that oil demand growth will expand by yet another 1.4 mb/d, this time with the help of the petrochemical sector. A number of projects are coming online earlier than expected, adding more consumption to the mix. The demand estimate is a rather strong one, given substantial expansion in demand over the past few years.
There are risks to that forecast, including “a weakening of economic confidence, trade protectionism and a potential further strengthening of the US dollar,” the IEA said. Those factors should not be overlooked. Indeed, strong demand does not stand independent of the price variable, for instance. How this plays out is unclear, but with the oil market now much tighter than at any point in the last few years, strong demand going forward will start to drive up prices much more than it did in the past.
The supply side of the equation is much more interesting. On the positive side of the ledger, the IEA sees non-OPEC supply growing by 2 mb/d in 2018, followed by another jump of 1.7 mb/d in 2019. The U.S. makes up three quarters of both of those figures.