IEA Warns Oil Prices Could Jump after 2017

Oil prices are likely to remain low through this year. But supply and demand will begin to balance in 2017, and prices could spike by 2021, warns the 29-member International Energy Agency.

“The historic investment cuts we are seeing raise the odds of unpleasant oil-security surprises in the not-to-distant future,” cautions IEA Executive Director Fatih Birol.

The Paris-based group notes that investment in oil exploration and production capacity plunged 24% last year and will shrink another 17% in 2016, thanks to a continuing global glut that has kept oil prices low. At the same time, oil output by the U.S.—which has contributed about two-thirds of supply growth—is falling.

Lower output will help align supply with demand next year, IEA predicts. Prices will be buffered temporarily as current inventories draw down. But as supplies narrow, prices will rise. They’ll also become more volatile, because the slump in spending on capacity will leave the industry with less ability to respond to spikes.

Still, IEA’s data indicate no imminent threat of runaway oil prices. The agency forecasts oil production will add 4.1 million barrels per day to the global oil supply by 2021, less than half the growth rate in 2009-2015. Over the same period, global demand is likely to expand by an average of 1.2 million bpd to reach nearly 102 million bpd by 2021.