Oil is unlikely to return to $80 a barrel before the end of 2020 despite unprecedented declines in investment, as yearly demand growth struggles to top 1 million barrels per day, according to the IEA.
LONDON, Nov 10 (Reuters) - Oil is unlikely to return to $80 a barrel before the end of 2020 despite unprecedented declines in investment, as yearly demand growth struggles to top 1 million barrels per day (bpd), the International Energy Agency said on Tuesday.
In its World Energy Outlook, the IEA said it anticipates demand growth under its central scenario will rise annually by some 900,000 bpd to 2020, gradually reaching demand of 103.5 million bpd by 2040.
The drop in crude to around $50 a barrel this year has triggered steep cutbacks in production of U.S. shale oil, one of the major contributors to the oversupply that has stripped 50 percent off the price in the last 12 months.
"Our expectation is to see prices gradually rising to $80 around 2020," Fatih Birol, executive director of the IEA, told Reuters ahead of the release of the report.
"We estimate this year investments in oil will decline more than 20 percent. But, perhaps even more importantly, this decline will continue next year as well."
"In the last 25 years, we have never seen two consecutive years where the investments are declining and this may well have implications for the oil market in the years to come."
Oil companies have grappled with the downturn and a "lower for longer" price outlook by slashing spending, cutting thousands of jobs and delaying around $200 billion in mega-projects around the world.
The IEA estimates investment has already fallen by 20 percent this year.
"In the next 10 years, even if oil demand growth were zero ... just to increase production to compensate for the decline of existing fields, we need investment at the level of $650 billion," Birol told a news conference.
Higher-cost producers in Canada and Brazil, as well as the United States are likely to fall victim to low oil prices faster than most exporters, but these declines could be offset by supply growth in Iraq and Iran.
Birol said the Middle East, which already provides about a third of the world's oil, could see exports equate to more than two thirds of total supply, particularly in a sustained environment of $50 oil prices.
"We have to think carefully about the oil security implications of a very few number of countries exporting a big chunk to the global markets alone," he said.
Yet unrest in Iraq, now OPEC's second-largest producer, and ageing infrastructure could hamper raising output there. Iran, expected to be free of Western sanctions this year, needs major investment to return to the 2.5 million bpd in production seen prior to 2012.
On the demand side, the IEA expects total energy consumption in China, the world's largest commodity consumer, to be double that of the United States by 2040.
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