The energy market and oil exchange traded funds may have more room to fall and will continue to stay depressed for a longer period as high production keeps a lid on prices.
WTI crude oil futures are hovering around $53 per barrel while Brent crude was trading around $59 per barrel.
The International Energy Agency warned that oil prices can continue to decline as the world remains “massively oversupplied” before markets tighten in 2016 once production growth outside of the Organization of Petroleum Exporting Countries falls, reports Grant Smith for Bloomberg.
“The rebalancing that began when oil markets set off on an initial 60 percent price drop a year ago has yet to run its course,” according to an IEA report. “Recent developments suggest that the process will extend well into 2016.”
The IEA projects that there will be no oil output growth outside of OPEC for the first time since 2008 on a drop in more costly drilling projects, such as those in U.S. shale oil beds and in Russia.
The agency warned that while “cost savings, efficiency gains and producer hedging” have helped shale drillers weather the current storms, U.S. operations are not sustainable at current prices, which could cause production growth to slow to 300,000 barrels per day in 2016 from 900,000 a day in 2015.