Bergen, Norway 11 – 13 June, 2019

More price downside before we see an upturn

Mr Keisuke Sadamori, is Director, Energy Markets and Security, at the International Energy Agency (IEA) in Paris and will be a keynote speaker at UTC Bergen. Among his IEA responsibilities are monitoring the global oil markets and responding to energy-supply disruptions. He gave us his view on the outlook for the world oil markets.

WEO204_2015Mr Sadamori was both pessimistic and optimistic about the likely course for the oil price. “The market is in the middle of a correction that has yet to run its course,” he said. “Today’s low oil price environment was brought about by the relentless rise of North American supply, faltering demand growth and OPEC’s decision in November 2014 to defend market share as opposed to price”.
“The process of rebalancing is underway, but there is likely to be more downside before the price rebounds for good,” he cautioned.

Asked how long it might be until we can see any upturn, he replied: “Oil prices are likely to remain in a lower range until there are concrete signs of supply tightness. Lower prices have led oil companies — both international and national – to take an axe to spending, so production growth will slow eventually.

“The biggest question mark hangs over US light tight oil (LTO) – oil from shale — which appears to be more responsive to price swings.”

He can see an improvement coming soon, he said, though his optimism was qualified. “The balances in our 2015 Medium Term Oil Market Report indicate that lower oil prices will translate into reduced supply growth later this year, resulting in a rebalancing that could support an uptick in prices,” he said.

“Higher prices, however, could stimulate increased spending and renewed supply growth – keeping in oil prices in check.”

OPEC still a major market player
Sadamori noted that oil producers’ organisation OPEC would remain “a dominant source of supply, despite robust growth in North America and elsewhere”, pointing out that “OPEC today accounts for some 40% of total oil output and the Middle East is — and will remain — the world’s largest exporting region for the foreseeable future.”

At the same time, he took the view that today’s oil market has changed fundamentally. He said: “There have been oil price peaks and troughs roughly every decade since the price shocks of the 1970s, yet we have never seen a situation like we’re in now. US LTO has changed the rules of the game. It has made non-OPEC supply far more price-elastic and upended the traditional division of labour between OPEC and non-OPEC countries.

“OPEC’s move in November 2014 to let the market rebalance itself may have effectively turned LTO into the new swing producer. But it will not drive it out of the market. LTO might in fact come out stronger. On the other hand, demand has become significantly less price elastic. That suggests that the market response to the oil price collapse may be swifter than [we have seen] to earlier price declines of a similar magnitude,” he said.

Cuts may not halt development
Turning to the situation for companies, Sadamori said: “Firms were tightening belts and cutting capital spending even before the price of oil began to fall. Due to cost inflation and high break-even prices for projects, they are now re-evaluating investments. Projects are being delayed and even cancelled.”

But the outlook for oil development may not be so bleak after all. “We have to remember, however,” he stressed, “that industry costs are also falling along with the price of oil. So spending cuts will not in every case lead to a material impact on oil sector development.”

Firms should seek opportunities
Sadamori’s advice to oil sector companies was to seek out the opportunities. “While challenging, low oil prices also provide opportunities for companies to increase efficiencies and for the industry as a whole to focus on projects that are sustainable in a lower oil price environment.

However, he warned that fiscal discipline and careful project management would be essential to ensure that adequate investment was made to bring on future supply in the short and long term.

Sadamori does not see the current price necessarily bringing forward alternative energy supplies. He observed: “Most renewable energy that is competing with fossil fuels is mandate-driven and as such will not be significantly impacted by a lower oil price. Furthermore, wind and solar power do not compete directly with petroleum-based fuels when it comes to power generation.”

Written by Eloise Logan



The International Energy Agency (IEA) is an autonomous organization which works to ensure reliable, affordable and clean energy for its 29 member countries and beyond.
Founded in response to the 1973/4 oil crisis, the IEA’s initial role was to help countries
co-ordinate a collective response to major disruptions in oil supply through the release
of emergency oil stocks to the markets.
While this continues to be a key aspect of its work, the IEA has evolved and expanded. It
is at the heart of global dialogue on energy, providing authoritative statistics, analysis and
Today, the IEA’s four main areas of focus are:
– Energy security: Promoting diversity, efficiency and flexibility within all energy sectors;
– Economic development: Ensuring the stable supply of energy to IEA member countries and
promoting free markets to foster economic growth and eliminate energy poverty;
– Environmental awareness: Enhancing international knowledge of options for tackling
climate change; and
– Engagement worldwide: Working closely with non-member countries, especially major
producers and consumers, to find solutions to shared energy and environmental concerns.
The annual World Energy Outlook (WEO) is now the world’s most authoritative source of energy market analysis and projections, providing critical analytical insights into trends
in energy demand and supply and what they mean for energy security, environmental
protection and economic development. The WEO projections are used by the public and
private sector as a framework on which they can base their policy-making, planning and
investment decisions and to identify what needs to be done to arrive at a supportable and
sustainable energy future.