Oil prices will soar after 2020, unless new projects are approved

Oil prices could see a sharp rise after 2020 as supply is expected to dwindle due to the recent slowdown in investments in new projects, Paris-based International Energy Agency (IEA) said in its latest five-year oil market forecast.

Demand and supply trends point to a tight global oil market in coming years, with spare production capacity falling to a 14-year low in 2022.

The largest contribution to new supplies will come from the United States, with its light tight oil (LTO) production to grow by 1.4 million bpd by 2022, if prices remain around $60 per barrel (bbl), the report said.

If prices climb to $80/bbl, US LTO production could grow by 3 million bpd in five years. Alternatively, if prices are at $50/bbl, it could decline from the early 2020s, the IEA said.

 “We are witnessing the start of a second wave of US supply growth, and its size will depend on where prices go,” Fatih Birol, IEA's executive director, said in the statement.

“But this is no time for complacency. We don’t see a peak in oil demand any time soon. And unless investments globally rebound sharply, a new period of price volatility looms on the horizon,” he added.

While supply is currently growing in the US, Canada and Brazil, it could stall over the next three years if the investment slump of 2015 and 2016 is not reversed, the agency said.

Meanwhile, within the Organization of Petroleum Exporting Countries (OPEC), the maximum part of the new supplies is expected to come from major low-cost producers, such as Iraq, Iran, and the United Arab Emirates.

Production from Russia, on the other hand, is forecast to remain stable over the next five years.

On the demand side, oil demand is projected to rise over the next five years, passing the symbolic 100 million barrels per day (bpd) threshold in 2019 and reaching about 104 million bpd by 2022. 

Demand is mainly seen rising in developing countries, and Asia dominates with about seven out of every 10 extra barrels consumed globally.

India's oil demand growth is expected to outpace China over the next five years, the report said.