Lower oil prices driving down investment and energy efficiency

Following up on World Energy Outlook 2015, which examined the potential impact of a prolonged period of lower oil prices on energy markets, an updated analysis from the International Energy Agency has confirmed that the current oil price environment has had a negative impact on oil investments, hurt energy efficiency and boosted the share of oil produced in the Middle East.

The latest data from the IEA showed that investments in the oil sector declined in 2015, and then again in 2016, the first consecutive two-year drop in three decades. 
The industry cut more than $300 billion in spending in two years, or 42 percent of the total, an unprecedented downturn, even taking into account significant reduction in costs. 
North America accounted for about half the drop. If prices remain at current levels, a significant rebound appears unlikely in 2017.
The latest data also points out that Middle East oil supply has reached historically high levels, exceeding 31 million barrels per day. 
The region now accounts for 35 percent of global oil supplies, the highest level since 1975. 
This growth in production, from Saudi Arabia, Iraq and Iran, highlights the fact that low-cost producers in the Middle East remain central to oil markets. 
Production from the Middle East is expected to account for most of the world’s demand growth this year.
Lastly, the lower oil and gasoline prices are also hurting energy efficiency trends in some countries, particularly in the transportation sector where they have given a boost to the sale of sport utility vehicles. 
Consumers have moved away from energy-efficient vehicles that they favored when oil prices were higher. 
In the US, SUV sales are now 2.5 times higher than light duty vehicles. 
In China, SUV sales are 4 times higher than light duty vehicle sales.
Crude prices inched up in choppy trading on Friday but Brent notched its largest weekly drop in nearly six months, as strong US jobs data and bargain hunting by investors pitted against seasonally weak consumption of oil.
“Some of the gloom and doom on demand destruction for oil has gone away with the US jobs numbers,” Phil Flynn, analyst at Chicago-based brokerage Price Futures Group, told Reuters.
Brent crude futures ended the session up 36 cents, or 0.8 percent, at $46.76 per barrel, after trading between $47.23 and $46.15, Reuters reported.
US crude’s West Texas Intermediate (WTI) futures settled up 27 cents at $45.41, compared with an earlier drop to $44.77 and a high of $45.97.
Both benchmarks were down nearly 8 percent for the week — the largest weekly slide for Brent since January and the biggest weekly drop for WTI since February.
Crude futures remain some 75 percent above 12-year lows of $27 for Brent and $26 for WTI hit in the first quarter. 
But the market has gyrated since hitting above $50 as a glut of refined products replaced worries about crude oversupply that caused a near two-year long tumble earlier.

Source: Arab News