Oil price to recover to $80 only by 2020, says IEA

Energy-snapshot-CopyOIOprices are set for a slow recovery, according to the latest report from International Energy Agency (IEA), which cautioned against the deep investment cutbacks in the industry.

In its latest World Energy Outlook, the IEA’s central scenario for oil prices forecast that the oil market would rebalance at $80 a barrel (bbl) in 2020, “with further increases in price thereafter.”

The IEA forecast that demand would pick up slowly to 2020, adding an average of 900, 000 barrels a day per year, gradually rising to a demand for 103.5 million barrels per day by in 2040. That compares with 94.5 million barrels per day in 2015.

It said this subsequent rise after 2020 would, however, be “moderated by higher prices, efforts to phase out subsidies (provided that momentum behind reform is maintained, even as oil prices pick up), efficiency policies and switching to alternative fuels.”

IEA Executive Director Fatih Birol told CNBC the organization did not think a world in which the price of oil was stuck at $50 for “many many years” was a likely scenario.

Birol added that Iraq production growth would slow down due to geopolitical turmoil, while growth in Brazil, Canada and Russia would also not be as strong as before.

The IEA forecast that collectively, the U.S., European Union and Japan would see their oil demand drop by around 10 million barrels a day by 2040.

“In terms of exporting…the Middle East will remain crucial,” Birol said. Iran could make a significant contribution to oil production once sanctions are lifted, but to see a major expansion the country needed to invest significantly.

Unable to break-even at the lower price of oil, many U.S. producers have either cut back on production or closed rigs entirely, showing that the OPEC strategy could be working.

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