Governments shouldn’t count on low oil prices: IEA

SINGAPORE (Reuters): Countries should not bank on oil prices remaining low when formulating their energy policies, as supplies could tighten from mid-2016 due to a drop in investment and falling US output, a senior industry official said on Monday.

Global oil prices have more than halved since June 2014 on rising US shale oil output and as members of the Organization of the Petroleum Exporting Countries (OPEC) decided to defend market share rather than cut production.

“It will be a great mistake to index our attention to oil security to the oil price trajectory in the short term,” Fatih Birol, executive director of the International Energy Agency (IEA), said at the Singapore International Energy Week.

If prices continued at current levels, oil investment was likely to decline again in 2016, mainly in high-cost regions, after sliding this year by more than a fifth, said Birol, who took over the top post at the Paris-based IEA in September.

“If it comes true, this will be the first time in two decades we will see oil investments declining for two consecutive years,” he said. “One should think about medium and long term implications of this lack of investments.”

US production of light tight oil production had peaked and was expected to decline by 400,000 barrels per day (bpd) in 2016, he added, tightening supplies further.

Birol said geopolitical risks in the Middle East that could disrupt supplies remained, although a lifting of sanctions on Iran could boost production by 400,000-600,000 barrels per day (bpd) within a year.