Oil prices may come under more downward pressure before recovering later this year as ample supplies push inventories higher, perhaps towards record highs, the West’s energy watchdog said on Tuesday.
The International Energy Agency (IEA) said in its monthly report that supplies remained abundant and that it would take time for investment cuts to make more than a relatively small dent on production, keeping prices low.
“Despite expectations of tightening balances by end-2015, downward market pressures may not have run their course just yet,” said the IEA, which advises major industrialised countries on energy policy.
The agency said that, “barring any unforeseen disruption, OECD stocks may by mid-2015 come close to revisiting the all-time high of 2.83 billion barrels reached in August 1998, shortly before (U.S. oil) prices sank to an average monthly low of $11.22 per barrel.”
Despite the glut, the IEA said that prices would likely rise later in the year as “market participants are seeing light at the end of the tunnel and growing confident that spending cuts by oil companies will lead to a market recovery”.
The report also said measures taken to balance the oil market this year could matter more in the next five to six years than in the near future as “today’s investment decisions typically take years to translate into physical supply/demand reality”.
The IEA said in a separate report on Tuesday that the United States would remain the world’s top source of oil supply growth up to 2020, even after the recent collapse in prices, defying expectations of a more dramatic slowdown in shale growth.
The agency said in its Medium Term Oil Market report that oil prices, which slid from $115 a barrel in June to a near six-year low close to $45 in January, would likely stabilise at levels substantially below the highs of the last three years.