Oil prices are likely to remain low over the next five years because of plentiful supply and falling demand in developed countries, the International Energy Agency (IEA) said Tuesday in its annual forecast. The Paris-based body, which advises developed countries on energy policy, said it expects oil prices to return to $80 per barrel in 2020, with further increases after that. In its World Energy Outlook, the IEA said it anticipates demand growth under its central scenario will rise annually by some 900,000 barrels per day to 2020, gradually reaching demand of 103.5 million bpd by 2040. The drop in oil to around $50 a barrel this year has triggered steep cutbacks in production of US shale oil, one of the major contributors to the oversupply that has stripped 50 percent off the price in the last 12 months. "Our expectation is to see prices gradually rising to $80 around 2020," Fatih Birol, the executive director of the IEA, told Reuters ahead of the release of the report. "We estimate this year investments in oil will decline more than 20 percent. But, perhaps even more importantly, this decline will continue next year as well." On the demand side, the IEA expects total energy consumption in China, the world's largest commodity consumer, to be double that of the United States by 2040. But greater efficiency and a shift away from heavy industry for economic growth will mean China will need 85 percent less energy to generate each unit of future economic growth than it did in the past 25 years. India will be the chief driver of rising demand, where the IEA expects consumption to increase more than anywhere else, hitting 10 million bpd by 2040. Birol said that while the agency's base-case scenario was not one in which the oil price languished around $50 a barrel for the next decade, it could not rule out a sustained period of low oil prices. Low near-term global economic growth and a lasting switch by OPEC to a policy of pumping oil at record rates to increase its market share and more resilient non-OPEC supply could conspire to keep the oil price lower for longer. "The oil price in this scenario remains close to $50 a barrel until the end of this decade, before rising gradually back to $85 a barrel in 2040," the IEA said in its report.
