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The agency blames the oil boom in the United States, higher output from OPEC and lower worldwide demand for oil’s poor performance.
Increased supply combined with a marked decrease in demand has hit the oil market this year, with the International Energy Agency (IEA) warning that low prices could continue in the near future.
The agency’s latest report, released on Tuesday, highlights how the oil boom in the United States and higher output from the Organization of Petroleum Exporting Countries (OPEC) are continuing to impact prices worldwide. Specifically, the IEA notes that global supplies rose by 910,000 barrels per day this past September, hitting 93.8 million barrels per day; meanwhile, it has revied down its forecast for 2014 global oil demand.
“Recent price drops appear both supply and demand driven,” states the IEA in its monthly oil market report. “Further oil price drops would likely be needed for supply to take a hit — or for demand growth to get a lift.
Revolution is bad for business
The agency pinpoints the US shale oil “revolution” as a significant factor in the increase of supplies and reduction in prices. Domestic oil fields will reportedly add about 1.1 million barrels a day of output this year, and another 963,000 in 2015, hitting production levels unseen since the 1970s, reports Reuters.
Production in the US has ramped up since 2009, when there were about 400 oil and natural gas rigs and just over 4 million barrels a day of oil produced. This year has seen roughly 12 million barrels a day of oil produced combined with over 1,200 rigs. North Dakota and Texas remain the heavy hitters, producing 860 and 2,530 barrels of oil per day, respectively.
Oil output in all the major US shale plays is expected to grow in November as prices continue to drop. These regions accounted for 95 percent of domestic oil production growth and all domestic natural gas production growth from 2011 to 2013. The more efficient techniques adopted by US shale drillers have grown US oil production by 65 percent in the past five years (the highest level since 1986).
Saudi Arabia fighting back
While some countries might cut back production so they can better turn a profit, OPEC’s chief analyst is warning market watchers that the organization won’t necessarily demand it.
“We should not expect OPEC to necessarily play its traditional role of swing producer,” Halff told Reuters on Tuesday.
Big-time oil producers have already gone on the offensive in a shot against US-driven supply.
Saudi Arabia is allegedly telling investors and analysts that it is satisfied with lower prices. In an article by Reuters, Saudi Arabia is reported as telling others that it will accept oil prices below $90 a barrel and possibly as low as $80 a barrel for the next year or two. The goal? To ensure it doesn’t lose the share of the market it currently has.
Iran and Kuwait have followed suit, saying there is no need to rein in supplies, reports CNBC.
Prices caught in the middle
What has been most hurt by all of this activity? Simply put: oil prices. The price of Brent crude oil per barrel back in mid-June was a healthy $115. It’s been all downhill since then. Prices have dropped roughly 25 percent amid the oil glut and stand off from Saudi Arabia. The IEA’s report spurred a large drop in the oil price on Tuesday, with Brent crude finishing the day at $81.84 a barrel following its biggest percentage drop since November 2012; that’s also its lowest settlement since June 28, 2012.
OPEC members are due to meet in Vienna on November 27 to address output policies and whether to take a stand and address the price drop. Investors are sure to keep a close eye on what the organization decides.
Securities Disclosure: I, Nick Wells, hold no direct or indirect investment in any of the companies mentioned.