The outlook for oil prices is still uncertain after the sharp fall that began last summer, the International Energy Agency said Wednesday.
Given the price collapse, “one might be hoping for more clarity on supply and demand,” the agency acknowledged in its monthly Oil Market Report, which was released Wednesday. “Yet in some ways, the outlook is only getting murkier.”
The agency’s report reflects a broad debate inside and outside the oil industry about where prices might eventually settle.
Citigroup, for one, expects prices to continue falling in the coming months, as output remains high, supply is building up and investors who had helped prop up prices begin to sell.
“While prices have held relatively firm, there are significant signs of weakness ahead,” Citigroup said in a note to clients Tuesday.
Royal Dutch Shell, the oil giant that announced an almost $70 billion takeover of the British oil and gas producer BG Group last week, is expecting prices to recover much of their recent drop over the next few years. It projects prices to hit $90 a barrel in 2018.
As the International Energy Agency noted, competing forces are still playing out in the market, making the direction difficult to discern. Low prices have stimulated higher-than-expected demand for oil products in China, India and even Europe, which has been plagued by lethargic economic growth, the agency said. But whether that increased consumption is a “temporary aberration” remains to be seen, it added.
There is much uncertainty, for instance, over future crude demand from China, which Wednesday reported economic growth of 7 percent, the weakest rate since early 2009.
Supply is also hard to gauge. While there are signs that low prices are beginning to have an impact on the production of oil from shale rock, overall U.S. oil output is expected to grow this year, the agency said.
In addition, the Organization of the Petroleum Exporting Countries is showing no signs of backing away from the policy, backed by Saudi Arabia, of holding onto market share regardless of falling prices. OPEC production rose almost 900,000 barrels a day in March from a month earlier, the agency said, as Saudi Arabia increased production to more than 10 million barrels per day.
Among the uncertainties in the market is the potential effect on oil supplies of a proposed nuclear accord with Iran, a major producer, the agency said. International sanctions have sharply reduced the country’s sales of oil, and an accord is expected to ease, or lift, those sanctions.
While it would take time for Iran to organize the enormous investment that would be required to sustainably bolster its production capacity, the agency said that the country might be able to make short-term changes to increase output and exports relatively quickly.
For instance, the agency said, Iran has 30 million barrels of oil stored on tankers, which could quickly feed an increase in exports. The agency also estimated that Iranian oil fields could ramp up production to as much as 3.6 million barrels a day, a 29 percent increase, within months of sanctions being lifted.
Specialists have been working at some of those sites, and “some of Iran’s core fields,” which were run down, may already have been revived, the agency said.
Under the pressure of sanctions, both Iranian production and exports have been curbed. Exports are down about 50 percent since 2012, to an average of around 1.1. million barrels a day, although they rose to 1.3 million barrels a day in March on high demand from China.