U.S. oil forecast to rule markets

Agency: OPEC struggle ahead

Thanks to the shale boom, the U.S. will dominate global oil markets for years to come, satisfying 80 percent of global demand growth to 2023 as the shale boom keeps OPEC under pressure, the International Energy Agency said.

“The U.S. is set to put its stamp on global oil markets for the next five years,” agency Executive Director Fatih Birol said in a report published Monday. OPEC’s surging rivals, which also include Brazil, Canada and Norway, will leave little space for the cartel to expand even after its production curbs expire this year.

The Organization of Petroleum Exporting Countries is riding high right now, defying the skeptics by going deeper than their pledged cuts and maintaining them for long enough to deplete bloated oil inventories. However, the ensuing price recovery has “unleashed a new wave of growth from the U.S.,” said the Paris-based International Energy Agency, which advises most of the world’s major economies.

Oil production from the prolific Permian Basin of west Texas will double over the period and the country’s total liquid hydrocarbon output is expected to rise to 17 million barrels a day

from 13.2 million last year.

The bullish forecast kickstarts the Cambridge Energy Research Associates annual CERAWeek conference, a gathering of thousands of oil executives, traders, bankers and investors in Houston.

West Texas Intermediate crude for April delivery rose $1.32 to settle Monday at $62.57 a barrel on the New York Mercantile Exchange. Total volume traded Monday was about 18 percent below the 100-day average. Global benchmark Brent crude rose $1.17 to end the session at $ 65.54 a barrel, for May settlement, on the

London-based ICE Futures Europe Exchange.

Concern that U.S. crude output, already at a record, will continue to climb has capped any significant price rallies.

The American surge and a slightly weaker outlook for global demand growth make uncomfortable reading for OPEC. The IEA slashed projections for the amount of crude needed from the cartel, indicating its supply cuts would need to stay in place until 2021 to avoid creating another prolonged surplus.

Closer to 2023, global markets will start to tighten and the International Energy Agency warned that more investment is needed to meet growth in consumption and

to make up for production lost to natural declines.

OPEC will struggle to start new production of its own. The agency’s five-year outlook for new output capacity from the group was reduced by about 62 percent from the previous report. The group will add 750,000 barrels a day by 2023 — just 2.1 percent — as gains in Iran and Iraq are offset by economically troubled Venezuela, where capacity will slump to the lowest since the 1940s.

There’s a risk the wider industry may also fall short after an unprecedented drop in spending from 2015 to 2016, and little sign of a rebound in the subsequent two years, the IEA said. Constant investment is essential because the

world loses about 3 million barrels of output each year — equivalent to the production of the North Sea — as oil fields age and their reservoir pressure drops.

As a result, by 2023 the level of spare production capacity that could be used in the event of a disruption will be the lowest since 2007. That increases the risk that prices will become more volatile, the agency said.

Still, that process isn’t happening as rapidly as previously feared. Despite expectations that lower investment would accelerate the depletion of maturing non-OPEC oil fields, the opposite is happening. Lower operating costs have so far offset the impact of reduced

spending.

The average decline rate eased to 5.7 percent last year, compared with 7 percent between 2010 and 2014, the IEA said. That shift was aided by a “remarkable deceleration in decline rates” in the North Sea.

Global oil demand will increase by a total of 6.9 million barrels a day to reach 104.7 million a day by 2023, with China remaining the “main engine of demand growth.” That’s an average annual growth rate of about 1.2 million barrels a day, little changed from last year’s forecast.