Slow growth could keep oil prices low ‘for rest of decade’

Oil prices could be stuck at their current lows near $50 a barrel until the end of the decade if global growth disappoints, the International Energy Agency (IEA) said today.

Brent crude is down from above $115 a barrel in June last year to $47 today, cutting prices at the petrol pump.

The IEA’s central case sees prices recovering to around $80 a barrel by 2020, but warned that a “more-prolonged period of lower oil prices cannot be ruled out”. Under this scenario, lower global growth drives down demand while the Opec oil cartel maintains higher production to keep a bigger share of the market.

“The oil price in this scenario remains close to $50 a barrel until the end of this decade, before rising gradually back to $85 in 2040.”

Such a prolonged period of low prices would be a boon to motorists, but imperil some of the biggest deals in the City like Royal Dutch Shell’s planned merger with BG.

But the drop in oil prices this year has triggered steep cutbacks in production of US shale oil — one of the major contributors to the oversupply which has halved price in the last 12 months.

Oil companies have grappled with the downturn by slashing spending, cutting thousands of jobs and delaying around $200 billion (£132.44 billion) in mega-projects around the world.

Fatih Birol, the IEA’s executive director, said: “We estimate this year investments in oil will decline more than 20%. But, perhaps even more importantly, this decline will continue next year as well.

“In the last 25 years, we have never seen two consecutive years where investments are declining and this may well have implications for the oil market in the years to come.”

The IEA expects energy consumption in China to be double that of the US by 2040, although India will be the chief driver of rising demand — needing 10 million barrels a day in 25 years’ time.