Lower Oil Prices Are Driving Down Investment and Energy Efficiency As Middle East Producers Gain Market Share, IEA Says

Oil and Gas - Jul 7, 2016

Following up on World Energy Outlook 2015, which examined the potential impact of a prolonged period of lower oil prices on energy markets, an updated analysis from the International Energy Agency has confirmed that the current oil price environment has had a negative impact on oil investments, hurt energy efficiency and boosted the share of oil produced in the Middle East.

The latest data from the IEA showed that investments in the oil sector declined in 2015, and then again in 2016, the first consecutive two-year drop in three decades. The industry cut more than $300 billion in spending in two years, or 42 percent of the total, an unprecedented downturn, even taking into account significant reduction in costs. North America accounted for about half the drop. If prices remain at current levels, a significant rebound appears unlikely in 2017.

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The latest data also points out that Middle East oil supply has reached historically high levels, exceeding 31 million barrels per day. The region now accounts for 35 percent of global oil supplies, the highest level since 1975. This growth in production, from Saudi Arabia, Iraq and Iran, highlights the fact that low-cost producers in the Middle East remain central to oil markets. Production from the Middle East is expected to account for most of the world’s demand growth this year.

Lastly, the lower oil and gasoline prices are also hurting energy efficiency trends in some countries, particularly in the transportation sector where they have given a boost to the sale of sport utility vehicles. Consumers have moved away from energy-efficient vehicles that they favored when oil prices were higher. In the United States, SUV sales are now 2.5 times higher than light duty vehicles. In China, SUV sales are 4 times higher than light duty vehicle sales.

Source : International Energy Agency

Published on Global Energy World: Jul 7, 2016


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