Global investment in upstream oil production in 2015 has decreased by $100bn, almost 20% lower than in last year and the largest drop ever seen, the International Energy Agency’s chief economist Fatih Birol said on Wednesday.
The US, Canada and Brazil saw the biggest fall in cash flow for upstream projects, Birol told journalists in Doha.
“Especially for shale oil, the decline rates are very steep. Investment decisions have to be taken in a very short time, as they are much more price sensitive”, Birol said.
“At the price level seen at the beginning of this year [around $45/barrel], there will not be many projects in North America that will be profitable,” he said.
Birol also noted of the huge gap between the cost of shale and the cost of crude oil production in the Middle East, which has weighed on investment.
The IEA predicted that demand for oil in 2015 would grow by 90,000 barrels a day, as a result of steady economic recovery, but it will remain uncertain how the market responds to the lower oil price environment.
The agency also revised its forecast for US production growth in 2015 by 50,000 b/d and said instead that output was set to increase by 710,000 bpd this year.
Accoridng to Birol lower upstream investment would add an upward pressure to prices throughout 2015, and so would expectations of improved performance in European economies.
“The European economy may do better than expected. If China and Asia go back to growth as before, around 7%, we will see slightly better oil demand in the fourth quarter of 2015,” he said.
“It would be rather surprising to see $45/barrel again for a sustained period,” Birol added.
Geopolitics has so far remained out of the price equation despite supply disruptions in Libya, Syria and more recently Yemen.
“We have a lot of spare capacity, which has given a buffer zone. Those geo-political risks are not big enough to move prices,” he added.
Birol also warned that sustained lower budgets and spending on oil could constitute a broader problem for the Middle East and expressed concern about spending in the region.
Â
