IEA predicts huge collapse in US oil output next year

Pumpjack in West Texas, US. (Image from WikiMedia Commons)

Non OPEC oil producers, including the United States, will have to make dramatic cuts next year as persistently low crude prices are taking a toll in the industry while giving Saudi Arabia a chance to regain some of its lost clout in global markets, the International Energy Agency said Friday.

In its closely watched monthly report, the IEA said that tight oil — a type of expensive-to-pump crude that has driven U.S. production in recent years —would drop by 400,000 barrels a day in 2016, a decline that already began in July.

“Oil’s price collapse is closing down high-cost production from Eagle Ford in Texas to Russia and the North Sea, which may result in the loss next year of half a million barrels a day — the biggest decline in 24 years,” the report said.

The agency, which advises the world’s biggest economies on energy policy, also expects that low prices will make global oil demand climb to a five-year high this year.

The IEA predictions are among the gloomiest for American oil production to emerge since U.S. crude prices crashed last month to less than $40 a barrel for the first time since the financial crisis.

At the same time, the report is one of the most bullish for the Organization of Petroleum Exporting Countries (OPEC) since the cartel shocked markets last year by deciding against cutting production, choosing to fight for market share and depress the output of higher-cost producers such as the U.S.

The agency expects China, the world’s second-largest oil consumer, to keep its crude purchases high despite the recent stock market turmoil, currency devaluation and negative macroeconomic news.