Oil prices might go even lower in 2016 in the United States

09/12/2015

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Oil prices pared some of their losses on Wednesday after falling to near seven-year lows earlier in the week, but those hoping for a rebound next year may be disappointed.

Fatih Birol, the executive director of the International Energy Agency (IEA), told CNBC that crude prices could continue to fall in 2016, presenting a challenge to governments that are trying to encourage the use of relatively expensive but sustainable energy sources.

"When we look at 2016, I don't see many reasons why we can see upward pressure on the prices… Demand is weaker and we may well see Iran come back to the market and there will be a lot of oil," Birol said, talking from the sidelines of the COP21 climate conference in Paris.

"So 2016 may well be another year with lower prices and this will have implications of course for investments in the oil sector."

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Brent and West Texas Intermediate (WTI) crude oil prices fell below $40 per barrel this week for the first time since early 2009. Both types of oil recovered on Wednesday, but WTI prices remained below $40, trading at just over $38.

Oil prices have declined since June last year due to supply and demand imbalances. U.S. shale gas production has risen and OPEC has maintained output, while demand from China, a massive consumer of commodities, has decreased.

Fatih Birol said that IEA estimates indicated that investment in the oil industry fell by more by 20 percent in 2015 – the steepest decline in history. A further decline is expected in 2016.

"We have never seen in the last 30 years, oil investment declining for two years in a row and this will have consequences for the markets in the next few years to come," he told CNBC.







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