oil prices

Today the International Energy Agency (IEA) warned that although low oil prices might be good for consumers, in the long run it could spell a disaster for the energy market. The low prices are forcing many US shale producers to cut budgets in order to deal with the low prices. The IEA said that spending on exploration and production has fallen 20% this year, and it warned against further cuts. IEA hopes that oil prices will recover by 2020 if there is strong global economic growth and higher demand for oil.

However, there is a strong chance that prices will stay around $50 a barrel until the end of this decade and in that case the world will have to rely only on a small number of Middle Eastern producers because teh majority of producers would find prices that low unsustainable, and would be priced out of the market. Reliance on Middle Eastern producers could reach levels last seen in the 1970s, and IEA predicted that Asian countries would be hit hardest by the insecurity.

“It would be a grave mistake to index our attention to energy security to changes in the oil price,” said IEA Executive Director Fatih Birol. “Now is not the time to relax. Quite the opposite: a period of low oil prices is the moment to reinforce our capacity to deal with future energy security threats.”

Oil prices are currently trading below $2/barrel – their lowest in 6 and a half years; compare to above $100/barrel in the middle of 2014.

The report released today also warned that lower oil prices could also slow down the world’s transition from fossil fuels to renewable energy.