<article><p>Opec's move to defend its market share in the lower oil price environment will allow the group to increase capacity only by about 200,000 b/d each year to 2020, compared with an average annual growth of 570,000 b/d in non-Opec supply, the IEA said today in its new <i>Medium-term Oil Market Report</i> (MTOMR).</p><p>As in previous editions of the report, demand growth is still projected to gain momentum from recent lows as the global economy slowly improves, albeit more slowly than expected. Following cutbacks in upstream investment, it is now forecast to run ahead of supply gains by as much as 1mn b/d over the next six years, resulting in significantly tighter balances by the beginning of the next decade.</p><p>In the eight months since the publication of the previous MTOMR report, oil prices have more than halved. "Opec has torn up the book on supply management. Companies have taken an axe to budgets. Exporting countries are struggling with financial gaps. Upstream investments have been scaled back," said IEA executive director Maria van der Hoeven.</p><p>The IEA's call on Opec crude is likely to start increasing next year, reaching 32.1mn b/d in 2020, compared with 29.4mn b/d last year, "as cuts in spending take a toll on non-Opec growth", said the Paris-based energy watchdog. It sees Opec's crude capacity at 36.2mn b/d in 2020, out of the global capacity of 103.2mn b/d.</p><p>Non-Opec supply will increase by 3.4mn b/d to 60mn b/d in 2020, compared with last year. The annual growth of 570,000 b/d is sharply lower than growth of 1mn b/d per year over the last five years and 1.9mn b/d in 2014 because of "lower capex in new projects and existing fields, which will see accelerated decline rates in Russia and the North Sea, among others."</p><p>Russia's production is set to decline to 10.37mn b/d, a 560,000 b/d fall compared with 2014. The IEA's 2014 MTOMR had expected Russian output to grow slightly. </p><p>"Although Western sanctions might have had only a limited impact on Russian medium-term supplies, had prices remained where they were when the measures were first implemented, in conjunction with the price declines, they will likely have a debilitating effect on Russian production capacity," the IEA said. "Sanctions on finance will prove especially challenging in the near term... Sanctions on technology will have far-reaching consequences on oil output in the latter years of our forecast."</p><p>US light tight oil (LTO), which has short lead and payback times, is likely to remain a key source of incremental supply, "with growth initially slowing to a trickle but swiftly regaining momentum later on, bringing production to a projected 5.2mn b/d by 2020," according to the report. "Although questions remain about the availability of capital to LTO producers on the rebound, on balance LTO investment cutbacks are not expected to have as long-lasting an impact as other spending cuts."</p><p>The IEA expects the global oil market to rebalance "relatively swiftly", but sees prices stabilising "at levels higher than recent lows but substantially below the highs of the last three years". The price assumptions — which are not forecasts — used by the IEA for modelling in this report average $55/bl in 2015, increasing gradually to $73/bl in 2020. The 2014 MTOMR used $100/bl for 2015 and 2016 and just below $90/bl in 2020.</p><p>"The price correction will cause the North American supply "party" to mark a pause; it will not bring it to an end," the IEA said. US supply will grow by 2.2mn b/d through 2020, to 13.96mn b/d.</p><p>Iraq is expected to increase capacity by 1.1mn b/d by 2020, accounting for almost 90pc of Opec's capacity gain over the next six years even despite the fall in oil prices and worsening security situation, according to the IEA. </p><p>Brazil's output is set to increase to 3.21mn b/d in 2020 from 2.33mn b/d last year, making it the second-largest source of non-Opec supply growth after the US.</p><p>But for Mexico, which is implementing a major upstream reform, the lower price environment means that the country will see benefit later than previously expected.</p><p>kr/ts</p><p><br> Send comments to <a href="mailto:feedback@argusmedia.com" target="_parent"> feedback@argusmedia.com </a></p><p><u><a href="http://www.argusmedia.com/Info/General/News" target="_TOP"> Request more information </a></u> about Argus' energy and commodity news, data and analysis services. </p><p><i> Copyright © 2015 Argus Media Ltd - <a href="http://www.argusmedia.com/" target="_TOP"> www.argusmedia.com </a> - All rights reserved. </i></p></article>