Soaring US oil production set to outstrip demand, IEA warns
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The International Energy Agency (IEA) has warned that the rise in global oil production – largely driven by US shale oil drilling – is likely to outpace growth in demand in 2018.
According to the IEA’s latest report to energy producers, demand for oil grew at 1.6 million barrels per day (bpd) in 2017. Following the International Monetary Fund’s decision to raise its estimates for global economic growth for 2018 and 2019, the IEA raised its forecast growth in oil demand from 1.3 to 1.4 million bpd.
Despite this, growth in demand is likely to be outpaced by growth in oil production.
The 14-nation Organisation of the Petroleum Exporting Countries (OPEC) joined with other major exporters – including Russia – to place a collective restriction on oil supply. This is a continuation of its efforts to balance the oversupplied oil market, bolstering oil prices. In 2017, inventories fell at a rate of 420,000 bpd, largely thanks to this policy.
However, the IEA has warned that US oil production – which, according to the US Energy Information Administration, could reach an output of 11 million bpd by 2019 – could cause growth to outstrip demand, pushing up stockpiles.
Such rapid growth of oil production in the US a “sobering thought” and could prove a “renewed challenge” for other producers, the IEA stated.
This could prove to be the second time US oil companies disrupt the OPEC’s plans in three years.
“Today, having cut costs dramatically, US producers are enjoying a second wave of growth so extraordinary that in 2018 their increase in liquids production could equal demand growth,” the IEA stated.
“In just three months to November, [US] crude oil output increased by a colossal 846,000 bpd and will soon overtake that of Saudi Arabia. By the end of this year, it might also overtake Russia to become the global leader.”
The IEA said that in spite of this rapid growth in US production, it was possible that oil prices could be supported if global growth remains strong, or if there continues to be unplanned outages in supply.
“But if [this is not the case], history might be repeating itself,” the IEA stated, referring to the tech-driven “shale oil revolution” in the US, which contributed to oil prices tanking in 2014.
The 2015 Paris Agreement – to which every UN member apart from the US is committed – will require many countries to look to alternatives to fossil fuels in order to reduce carbon emissions and mitigate climate change to avert the worst impacts of rising global temperatures. Already, France has adopted a law putting an end to new fossil fuel projects, and entirely phasing out fossil fuel exploitation by 2040.