Oil firms to slash spending by 17% this year

. Prices sustain rising profile for the second day

The oil price crash is expected to slash capital expenditure on global oil exploration and production by 17 per cent this year, after a 24 per cent drop in 2015, according to the International Energy Agency’s (IEA) medium-term outlook.

IEA said in the report, released yesterday, that this would be the first time since 1986 that upstream investment has fallen for two consecutive years.

Prices of crude oil have continued to rise, as West Texas Intermediate (WTI) increased from $30.59 to $31.48 a barrel while Brent crude oil also rose from $33.83 to $34.69 per barrel during the early hours of trading yesterday.

Oil prices also rose sharply on Monday, after IEA said U.S. shale oil production would likely fall by 600,000 barrels a day in 2016 and another 200,000 barrels a day in 2017.

The report projected 4.1 million barrels a day (mbpd) being added to global oil supply between 2015 and 2021, down sharply from the total growth of 11 mbpd in the period 2009 to 2015.

The drop in supply growth comes as upstream investment dries up in response /to the current glut that is pressuring prices.

It said that global oil supply growth is plunging as an extended period of low prices takes its toll.

While U.S. light, tight oil (LTO) output is falling steeply for now, it hinted that the market will begin rebalancing in 2017 – and by 2021 the United States and Iran are seen leading production gains among non-OPEC and OPEC countries, respectively.

The report notes that while oil prices should start to rise gradually once the market begins rebalancing, the availability of resources that can be easily and quickly tapped will limit the scope of rallies – at least in the near term.

However, the report pointed to the risk of an oil price spike in the later part of the outlook period arising from insufficient investment.

IEA stated: “US production is seen reaching an all-time high of 14.2 mbpd by the end of the forecast period, but only after falling in the short term. LTO output declines by 0.6 mbpd this year and by a further 0.2 mbpd in 2017 before a gradual recovery in oil prices, combined with further improvements in operational efficiencies and cost cutting, allows production to resume its upward climb.

“The United States remains the largest contributor to supply growth during the forecast period, accounting for more than two-thirds of the net non-OPEC increase. Freed from sanctions, Iran leads OPEC gains as Iranian oil output rises one mbpd to 3.9 mbpd by 2021”.

The report sees global oil demand growing at an average rate of 1.2 mbpd through 2021, crossing the symbolic 100 mbpd mark towards the end of the decade before reaching 101.6 mbpd by 2021. “Indian consumption races ahead as more motorists take to the roads, while Chinese demand growth cools in tandem with the economy. Global oil trade continues its pivot towards Asia”, the report stated.