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By 2020, the limited exploratory capital expenditures of the past two and a half years will make meeting global oil demand difficult, according to a report by the International Energy Agency on Monday.
Growing global demand paired with a contraction in new oil projects in 2015 and 2016 will cause a “supply crunch” if new projects do not get approved soon, according to the five-year outlook included in the “Oil 2017” report.
A majority of short-term supply growth will come from American shale producers set to increase output by 1.4 million barrels by 2022 even if Brent barrel hovers around $60.
"The United States responds more rapidly to price signals than other producers. If prices climb to $80 a barrel, U.S. light tight output [or shale] production could grow by 3 million bpd in five years," the agency said.
The forecasted growth in U.S. production could quickly be stifled by a second steep price drop, but oil prices have been in a positive trajectory since the Organization of Petroleum Exporting Countries’ production cuts went into effect in January. With or without a floor-shifting price change, volatility is unavoidable, according to IEA analysis.
"We are witnessing the start of a second wave of U.S. supply growth, and its size will depend on where prices go," IEA head Fatih Birol said. "But this is no time for complacency. We don't see a peak in oil demand any time soon. And unless investments globally rebound sharply, a new period of price volatility looms on the horizon."
Related: Oil Price, Sanctions Weigh on Russian Stocks, Moscow Unfazed
The number of active oil rigs in the U.S. has increased by 132 since the OPEC agreement was announced on November 30, as American drillers continue to ramp up while OPEC continues to hold its members largely to specified production caps.
By Zainab Calcuttawala for Oilprice.com
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Zainab Calcuttawala is an American journalist based in Morocco. She completed her undergraduate coursework at the University of Texas at Austin (Hook’em) and reports on…