Positive Outlook for Global Oil Markets

  • 13 September 2015

The International Energy  Agency “IEA” holds  an important position in the system of decision-making in global energy markets. This agency, which was founded in 1973, initially included sixteen states, and now includes twenty eight countries. It is considered the main platform for coordinating energy policies among the major industrialized countries as well as major consumers of the energy in the world, which makes it the main arena in which all players of the global demand for oil and energy are able to voice their concerns.

These dynamics increase the leverage and influence of reports and forecasts issued by the agency on the global oil and energy markets. Evidence of this can be seen through the recent forecasts on the future of global oil demand, as the agency has suggested that the current decline in world oil prices will force producers outside the (Organization of the Petroleum Exporting Countries)  “OPEC” including the United States to cut their production next year, its highest pace in more than two decades with the hope of restoring balance to the market in response to an increase in oil supplies. The agency confirmed in a section of its report, under the title “The erosion of oil prices curbs the high production cost of (Eagle Ford) in Texas to Russia and the North Sea”, that the steps taken by (OPEC) to refrain from cutting production-by the end of last year – began to reap benefits. The Agency has supported this forecast by stating that the cut in production of non-Member States as a consequence of lower oil prices will result in a loss of global supply by more than half a million barrels per day next year. Hence, the agency suggested that the global oil demand growth rate will jump this year to its highest level in five years, to hit 1.7 million barrels per day.

These  forecasts involve a lot of implications on the future of global oil markets in the short and long term, particularly in relation to the balance between both sides of the market, represented by global oil demand and global supply. While the market is now experiencing a surplus in supply as a result of the significant growth in supply coupled with a severe weakness in demand, the situation is likely to change in the near future when supply volumes decline on one side, and the size of demand grows markedly on the other side, in turn eliminating the phenomenon of oversupply and its heavy burden which will see markets shift gradually towards a new and increasingly positive equilibrium compared to the current situation.  Prices will start rising gradually and ultimately stabilize. These developments will  eliminate the haze currently surrounding  global oil markets as well as adjust the price movement even more so going forwards, hence making the decision-making much more easy with regards to the markets, whether producers or consumers. This overall will make all markets more efficient in carrying out their objectives.

Thus, these forecasts give further credence to the pivotal role of the “OPEC” Organization as a key supporter of stability in the world oil markets, and a key player in the formation of energy policies, which are essential pillars of global economic policies as a whole. These forecasts also emphasize “OPEC” as a body capable of restoring balance and stability in the world oil markets despite the challenges faced, through the adoption of policies and procedures in order for markets to strengthen encouragement and support for the global economy.