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2/22/2016 8:00:00 AM Write a Letter to the Editor Write a letter to the Editor

Oil Glut Will Persist Into 2017 as IEA Sees Prices Capped

Brittany Sowacke/Bloomberg News

The global oil glut will persist into 2017, limiting any chance of a price rebound in the short term as the surplus takes even longer to clear than previously estimated, according to the International Energy Agency.

While U.S. shale oil production will retreat this year and next as the price slump hits drilling, its subsequent recovery will ensure America remains the biggest source of new supply to 2021. The Organization of Petroleum Exporting Countries will expand its market share slightly this decade, with Iran, newly released from international sanctions, displacing Iraq as the organization’s biggest contributor to supply growth.

“Only in 2017 will we finally see oil supply and demand aligned, but the enormous stocks being accumulated will act as a dampener on the pace of recovery in oil prices,” the Paris-based adviser to 29 countries said in its medium-term report Feb. 22. “It is hard to see oil prices recovering significantly in the short term from the low levels prevailing.”

IEA’s new outlook is the latest sign that oil forecasters are bracing for a “lower-for-longer” price environment. The agency acknowledged that the industry’s expectations — and its own predictions — that oil markets would recover in 2015 proved “very wide of the mark.” The report also signals that while OPEC will succeed in its policy of defending market share, the group will have to endure an extended period of reduced revenues.

Oil futures have sunk by 42% in the past year as the global surplus was prolonged by resilient U.S. crude production, increased supply from key OPEC members and slowing economic growth in China. Brent crude traded near $34 a barrel  Feb. 22, having slumped to a 12-year low near $27 in late January.

After declining this year, supply from outside OPEC will remain stable in 2017 and recover in 2018, growing by 2 million barrels in the six years to 2021 to reach 59.7 million barrels a day. Prices won’t need to rebound to $100 a barrel to finance that new output, the agency said.

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By Grant Smith
Bloomberg News

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