IEA Sees US Oil Output Collapsing Next Year on Low Prices

IEA Sees US Oil Output Collapsing Next Year on Low Prices
Lower oil prices will force non-OPEC producers including the US to cut output by the steepest rate in more than two decades next year.


LONDON, Sept 11 (Reuters) - Lower oil prices will force non-OPEC producers including the United States to cut output by the steepest rate in more than two decades next year, rebalancing an oversupplied oil market, the International Energy Agency said on Friday.

The IEA, which advises the world's biggest economies on energy policy, said global oil demand was poised to climb to a five-year high this year thanks to lower prices.

It steeply revised its outlook for demand for oil from the Organization of the Petroleum Exporting Countries.

The report is one of the most bullish for OPEC since the group shocked markets last year by deciding against cutting production, choosing to fight for market share and depress the output of higher-cost producers such as the United States.

"The big story this month is one of tightening supply, with the spotlight firmly fixed on non-OPEC," the IEA said in its monthly report.

"Oil's price collapse is closing down high-cost production from Eagle Ford in Texas to Russia and the North Sea, which may result in the loss next year of half a million barrels a day - the biggest decline in 24 years."

The projected drop in output would be the largest since 1992, when non-OPEC supply contracted by 1 million barrels per day (bpd) from the previous year, with the collapse of the former Soviet Union.

The IEA said it now expected U.S. light, tight oil production to shrink by 0.4 million bpd next year after expanding by a record 1.7 million bpd in 2014.

Meanwhile, global oil demand growth is expected to climb to a five-year high of 1.7 million bpd or 1.8 percent in 2015, before moderating to a still-above-trend 1.4 million in 2016 - 0.2 million more than in the previous IEA report.

In 2014, growth stood at a five-year low of 0.8 million bpd.

As a result, the world would need much more crude from OPEC, the IEA said. It estimated that the group would need to pump around 31.3 million bpd in 2016 - 0.5 million bpd more than the forecast in the previous IEA report - to balance the market.

In the second half of 2016, OPEC would need to pump some 32 million bpd - the first time the world would require more oil than the group currently produces.

OPEC, led by Saudi Arabia, has been pumping much more oil than the market needed over the past year, resulting in global oversupply and a price crash.


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Gary  |  September 29, 2015
The USA is already down 500K barrels per day from its peak this year. The production graph has a perfect head and shoulder formation which indicates a big drop to come. IMO, 2016 will most likely see a 2 mill per day drop if prices remain this low. 50% of the rigs have been taken off line for a 2% surplus. This does not pass the logic test. Consequences will be seen from these actions.
Doug Sheridan  |  September 11, 2015
Its conventional wisdom oil producers that have hedged their production forward at higher-than-market prices have economic incentive to keep producing until the hedges expire. In the vast majority of cases, this is actually not the case (unless the hedge is a physical-forward sale requiring delivery to Illiquid point). Thus, my guess is that crude production might very well fall faster than some of the experts projections once hedged producers begin taking a closer look at their economics... choosing to shut-in production and/or shut down operations sooner rather than later.

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