Non-Opec production faces biggest decline in more than 20 years

The oil price slump will force non-Opec producers including the US to cut output but drive demand for the cartel’s crude, according to the world’s leading energy forecaster, a sign that the Saudi Arabia-led strategy to defend market share is succeeding.

“Oil’s price collapse is closing down high-cost production from Eagle Ford in Texas to Russia and the North Sea,” said the International Energy Agency in its closely watched monthly report published on Friday.

Non-Opec production will drop by nearly 500,000 barrels a day in 2016 — the most in 24 years — taking output from these countries to 57.7m barrels a day. The effort “to defend market share regardless of price appears to be having the intended effect,” the IEA said.

The lower price environment is forcing the market to “behave as it should”, the IEA said, shutting in production and luring more buyers. Demand growth is forecast to reach a five-year high in 2015.

Despite the bullish IEA forecast for the coming year, supply — at 96.3m b/d in August — continues to outpace demand and inventories are building.

Goldman Sachs trimmed its oil price forecasts saying the potential for oil prices to fall to around $20 a barrel was growing due to falling storage levels. “The oil market is even more oversupplied than we had expected,” said the bank which once forecast prices at $200 a barrel.

Brent crude, the international benchmark, dropped $1.15 to $47.74 a barrel by midday Friday, while US marker West Texas Intermediate fell $1.15 to $44.74 a barrel.

Goldman cut its 2015 Brent price forecast to $53.70 a barrel from $58.20. it reduced its 2016 estimate to $49.50, down from $62. The bank lowered its US crude forecast for 2015 to $48.10 a barrel, down from $52. The 2016 estimate was cut to $45 from $57.

The IEA said inventories stand 2.4m b/d above levels a year ago. “Our balances show the world only starting to siphon off record-high stocks in the second half of 2016,” it said.

Even so, US output from shale fields is expected to bear the brunt of an oil price rout that has wiped more than half the value off Brent crude since June 2014, the IEA said.

After expanding by a record 1.7m b/d in 2014, “the latest price rout could stop US growth in its tracks”. It is forecast to grow by around 500,000 b/d this year and contract by 400,000 b/d in 2016 as drilling and completion rates decline.

Producers outside of the US are also adjusting to lower oil prices. “Marginal fields are being shut or are at risk as companies seek to stem losses from high operating costs. Spending curbs are also accelerating decline rates,” the IEA said.

The sizeable slump in non-Opec production and robust demand growth suggest that “unless prices recover, lower-cost Opec producers would need to turn up the taps during the second half of 2016 to keep the market in balance.”