The global oil market will start rebalancing in 2017, but the supply glut will hold down prices, according to the International Energy Agency.
"Only in 2017 will we finally see oil supply and demand aligned but the enormous stocks being accumulated will act as a dampener on the pace of recovery in oil prices when the market, having balanced, then starts to draw down those stocks," said the IEA's medium-term market report, released today.
"Unless we see an even larger than expected fall in non-Opec oil production in 2016 and/or a major demand growth spurt it is hard to see oil prices recovering significantly in the short term from the low levels prevailing at the time of publication of this report."
Saudi Arabia's "lower for longer" strategy has kept production near all-time highs in order to drive prices down and cut out some of its higher-cost competitors. The subsequent oil price rout has hit oil-dependent economies hard, particularly the likes of Venezuela, which is on the brink of a complete economic collapse.
Read more: Oil price steadies after rough week
Read more: Gulf can cope with low oil prices, says IMF
While the report predicted that oil prices will stay low in the short term, it also warned that insufficient investment into the sector could lead to more oil price volatility later in the period.
“It is easy for consumers to be lulled into complacency by ample stocks and low prices today, but they should heed the writing on the wall: the historic investment cuts we are seeing raise the odds of unpleasant oil-security surprises in the not-too-distant-future,” said IEA executive director Fatih Birol.
The report predicts that 4.1 million barrels of oil a day will be added to global oil supply between 2015 and 2021, down sharply from 11 million barrels a day between 2009 and 2015.
The drop in supply growth comes as upstream investment dries up in response to the current glut that is pressuring prices, the report said.
Global oil exploration and production spending is expected to fall 17 per cent in 2016, following a 24 per cent cut in 2015 – which would be the first time since 1986 that upstream investment has fallen for two consecutive years.