Oil prices are expected to fall over the next five years as demand slumps and a ramp-up in production helps boost supplies, the International Energy Agency (IEA) said Friday.
The group, which represents the world’s 28 richest countries, said the combination will help “redefine the refining industry and transform global oil trade,” though it noted geopolitical risks will continue to loom over the oil supply chain.
The Paris-based IEA sees global oil product capacity growing to 101 million barrels of oil a day by 2017, above its earlier forecast of 95.7 million barrels.
Global demand is forecast to grow at an annual average of 1.1 million barrels a day over the next five years, compared with the IEA's earlier projection of 1.2 million barrels.
More of the growth in oil supply is expected to come from the Americas, buoyed by new drilling technologies in U.S. and Canadian oil sands. Growing output from reserves like the Bakken and Eagle Ford shales has helped propel U.S. domestic oil production to the highest level since 1995.
Looking to capitalize on the jump in production, oil major BP recently secured a license to ship U.S. crude oil to Canada and Royal Dutch Shell is reportedly applying for U.S. export licenses.
Oil production in Middle Eastern countries like Iraq is expected to continue ramping up despite diminishing appetite in North America, and that could help feed growing regional demand there.
“Iraq stands out as its production capacity is expected to enter a new growth phase, which may continue even beyond the forecast period,” the IEA said.
However, in other areas, such as Libya, security concerns may continue to constrain production growth over the next few years.
While some Western companies like BP (BP) have announced plans to return or ramp up production in Libya since the killing of long-time dictator Moammar Qaddafi a year ago, the killing of a U.S. envoy there last month resurrected safety fears.
The IEA, though, said it expects new supply sources to more than offset any decline in rates or outages elsewhere in the world, as well as the tough international sanctions on Iran.
At the same time, the spreading of refining capacity to emerging regions like Asia is expected to help offset decreases in other areas of the world.
Internationally traded crude volumes are projected to decline sharply, but the IEA said product trade is forecast to growth in both volume and scope.
Sweet crude oil was down about 0.50% Friday afternoon to $91.52 and is down about 6.84% from the start of year. It’s still up about 9.3% from 12 months ago.