LONDON (Reuters) - Oil prices are likely to come under further downward pressure, the International Energy Agency said on Friday, as it cut its outlook for demand growth in 2015 and predicted healthy non-OPEC supply gains would aggravate a global oil glut.
The agency, which coordinates energy policies of industrialized countries, cut its outlook for global oil demand growth for 2015 by 230,000 barrels per day (bpd) to 0.9 million bpd on expectations for lower fuel consumption in Russia and other oil-exporting countries.
The IEA said it was too early to expect low oil prices to start seriously curtailing North American supply boom.
“Barring a disorderly production response, it may well take some time for supply and demand to respond to the price rout,” the IEA said in its monthly report.
Oil prices have been in steep decline since June due to slow demand growth and a North American shale oil boom.
The selloff gained pace after OPEC decided last month to keep its output target unchanged to fight for market share with rival producers.
Global crude oil benchmark Brent was trading on Friday at a five-year low around $63 per barrel, down more than 40 percent from June. The decline in price deepened after the release of the IEA report LCOc1.
Surging U.S. light tight oil supply will push total non-OPEC production to record growth of 1.9 million bpd this year although the pace of growth is expected to slow to 1.3 million in 2015, the IEA said.
Given lower estimates of global demand growth, the IEA said it had revised its predictions for demand for oil from OPEC for 2015 down by 300,000 bpd to 28.9 million bpd. That is more than 1 million bpd below the cartel’s current production.
Demand for OPEC oil will bottom seasonally in the first quarter of 2015, leading to a large build up in stocks.
The IEA said that, based on current projections of still relatively weak demand growth and robust supply, global oil inventories would build by close to 300 million barrels in the first half of 2015 in the absence of disruption, shut-ins or cut in OPEC production.
“If half of this took place in the OECD, stocks there would approach 2,900 million barrel and possibly bump against storage capacity limits,” the IEA said.
The IEA said several years of record high prices, when oil traded at above $100 per barrel, were the root cause of “today’s rout: a surge in non-OPEC supply to its highest growth ever and a contraction in demand growth.
It said lower oil prices were already slashing producers’ spending, but it was more likely to affect medium- and long-term output than short-term supplies: “Today’s oil spending cuts will dent supply - just not right now.”
The short-term outlook for U.S. light tight oil production remained unchanged at current prices, it said, as long as producers had access to financing.
It added that in 2015 only Russia would likely trim production as lower oil prices were causing pain alongside Western sanctions.
When OPEC decided last month against cutting production, Saudi oil minister Ali al-Naimi said the market would sort itself out, suggesting lower prices would ultimately lead to a spike in global demand, which will in turn would lead to a price recovery.
“As for demand, oil price drops are sometimes described as a “tax cut” and a boon for the economy, but this time round their stimulus effect may be modest,” the IEA said.
Oil producing countries, such as Russia, will consume less oil next year and in the OECD countries demand will be depressed by a tepid economic recovery, weak wage growth and deflationary pressures.
“The resulting downward price pressure would raise the risk of social instability or financial difficulties if producers found it difficult to pay back debt. Continued price declines would for some countries and companies make an already difficult situation even worse,” the IEA said.
Writing by Dmitry Zhdannikov; Editing by Christopher Johnson