IEA Forecasts Spike in Oil Prices Unless New Projects Are Approved.....

At the CERAWeek energy conference in Houston this week, the International Energy Agency (IEA) noted that oil prices are set to rise sharply starting in 2020 if new energy investments are not made in 2017. Despite global oil supplies appearing adequate for the next three years (due to supply additions from growing U.S. shale and Canadian oil sands projects), in 2020 the oil markets could be in for a significant price shock. Specifically, the IEA noted that oil investments dropped sharply in both 2015 and 2016, and if that trend continues into 2017, there will be a significant problem in three years. Interestingly, the agency noted that oil investment globally was US$450 billion in 2016. The IEA is hoping to see that increase by 20% or a further US$90 billion in 2017. Regarding Canada, oil investment was estimated at $37 billion in 2016, and the Canadian Association of Petroleum Producers (CAPP) expects it to rise to $44 billion in 2017.

In terms of demand, the IEA does not see peak oil coming in either the short or medium term, as global oil demand should remain strong driven by both India and China. Notably, global oil demand grew by 2 million bbl/d in 2015, the largest year-over-year growth in five years and is expected to continue to grow at roughly 1.2 million bbl/d per year to 2022 (propelling total global oil consumption to 104 million bbl/d in 2022 from 97 million bbl/d currently). Overall, without significant investment in oil projects this year, the IEA compared the potential market dynamics in 2020 to those seen in 2008, when oil prices spiked to more than US$140 per barrel. As oil prices remain range bound between $50-$60 per barrel and so much uncertainty around whether any significant oil projects will enter the pipeline in the next few years, the possibility of a price spike in oil in the coming years seems very real.