International Energy Agency executive director Fatih Birol warns over under-investment in the oil industry

Jessica Morris
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Birol also flagged declining US oil output (Source: Getty)

The executive director of the International Energy Agency (IEA) Fatih Birol has warned that a drop in investment across the oil industry could cause prices to tighten from mid-2016.

Speaking at the Singapore International Energy Week, he said oil investment was likely to fall again in 2016, after sliding by more than a fifth this year.

"If it comes true, this will be the first time in two decades we will see oil investments declining for two consecutive years. One should think about medium and long term implications of this lack of investments," Birol said.

Read more: Oil price drop "to halve profits of oil giants"

Oil prices have tumbled from a peak of around $102 per barrel in June last year, to just $48 per barrel today. This has discouraged producers from spending money on the infrastructure needed to get oil out of the ground, and there are concerns this will eventually lead to a shortage, in turn pushing up prices.

Birol added US shale gas production had peaked and would decline by 400,000 barrels per day next year, applying more upwards pressure to oil prices.

Another factor which could tighten supplies was the risk of renewed geopolitical conflict in the Middle East, something which has the potential to send the price of the black stuff soaring.

Nevertheless, the IEA expects oil supplies to remain plentiful enough until mid-2016, and the did not expect a strong price rebound in the short term.

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