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The Oil Price Fall and its Implications for the Global Economy and Energy Markets Introductory Remarks Fatih Birol Chief Economist, IEA © OECD/IEA 2013 Who is driving change in oil markets? Net oil production and consumption changes, 2008-2014 Oil production mb/d 5 4 3 Oil consumption IEA countries OPEC countries 2 1 0 -1 -2 -3 OPEC remains central to the global oil outlook, but over the past 6 years it is the IEA that has freed up more than 6 mb/d to fuel rising consumption in other markets © OECD/IEA 2013 Looking ahead on the oil price Buoyant supply in North America, weaker global demand & a shift in OPEC stance has brought prices down – but for how long? Lower prices are curtailing many companies’ upstream spending plans, with implications for future output Over time, squeezed cash flow will constrain the capacity of North America & Brazil to act as engines of global supply growth An oil price at current levels provides some breathing space to major oil importers, boosting demand & GDP It also accelerates reliance on low-cost producers in the Middle East, some of which face major investment challenges © OECD/IEA 2013 The price is hitting upstream spending Billion dollars Global upstream oil and gas investment 750 20% 500 250 2012 2013 2014 2015 (est.) Announced capex cuts for 2015 are highest (at up to 40%) in North America & Brazil; for tight oil, a decision to stop drilling feeds through more quickly to production levels © OECD/IEA 2013 Projecting future developments Central scenario in WEO-2015 assumes market rebalancing by 2020 at a higher price, & further gradual increases thereafter But there are those who see prices staying lower for longer We examine this possibility in a WEO-2015 ‘Low Oil Price Scenario’, an additional global modelling exercise that assumes: Strategy among large resource-holders to prioritise market share & minimise substitution away from oil remains in place for the long term Optimistic view on geopolitics & ability of main producing regions to weather the impact of lower hydrocarbon revenues Strong resilience of some non-OPEC sources of supply, notably US tight oil Efficiency policies & subsidy removal that limit the rebound in oil use © OECD/IEA 2013