Oil prices likely to stay at $60 a barrel for two years, energy group predicts

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Oil prices are likely to stay at $60 a barrel or lower for the next two years as US shale extraction continues to suppress prices, the International Energy Agency has predicted.

After plunging from $115 a barrel in June to little more than $45 in January, the price of Brent crude has rallied recently, but the IEA said price pressures could have further to go.

“Despite expectations of tightening balances by end-2015, downward market pressures may not have run their course just yet,” the IEA, which advises mainly developed economies on the oil market, said in a monthly report.

Brent crude fell 66 cents to $57.68 a barrel on Tuesday, ending three straight days of gains. The IEA predicted an average price of $55 this year with prices rising to $60 in 2016.

In its medium-term oil market report, the IEA said the fall in the oil price would cause a pause in the US shale, or fracking, boom. But the US will remain the top source of supply growth for the next five years.
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Opec has refused to cut output to support the oil price, instead allowing prices to fall in the hope that smaller US operators would be forced out of business. The IEA predicted the clear-out would be limited and insufficient to restructure the market fundamentally.

“The market rebalancing will likely occur relatively swiftly but will be comparatively limited in scope,” the agency said. “The price correction will cause the North American supply ‘party’ to mark a pause; it will not bring it to an end.”

The IEA also reduced its estimate for global oil demand from its previous medium-term outlook, published in June. Consumer inflation in China droppped to a five-year low for January, raising concerns about oil demand in the world’s second-largest economy.

Supply growth from the US will slow sharply at first but will regain its momentum but Russian production will fall in the next five years, the report forecast.

“Russia, facing a perfect storm of collapsing prices, international sanctions and currency depreciation, will likely emerge as the industry’s top loser,” it said.

Opec on Monday forecast demand for its oil this year would be higher than expected as its refusal to prop up prices hits other producers.

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