Low oil prices are set to spur on the fastest growth in oil demand for five years, the International Energy Agency (IEA) said today, but prices could stay lower for a long period as producers opt not to rapidly cut back production.
Global oil demand is set to grow by 1.5m barrels per day this year, the IEA said, up 200,000 barrels from the its last forecast.
Prices are expected to take a further toll on producers which aren't members of the Organisation of Petroleum Exporting Countries (Opec), with non-Opec supply growth to slow to 1.1m barrels a day this year to a 200,000 barrel day contraction in 2016.
But this reduction in supply is too slow to bring prices up any time soon, the IEA said.
“While a rebalancing has clearly begun, the process is likely to be prolonged as a supply overhang is expected to persist through 2016 - suggesting global inventories will pile up further,” the IEA said.
“Oil’s plunge below $50 barrels a day from triple digits a year ago has seen demand react more swiftly than supply,”
“Against this backdrop, many participants in the oil industry have adopted a new mantra – ‘lower for longer’.”
A combination of factors are pushing oil prices down: Opec is cutting prices to support its market share; growth in China, a big oil importer, is slowing; and Iran has signed a deal to curb restrictions on its oil sales.