## A "New Normal" for the Oil Market

_IMF Blog, October 27, 2016_

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**Canonical URL:** [A "New Normal" for the Oil Market](https://www.imf.org/en/blogs/articles/2016/10/27/a-new-normal-for-the-oil-market)

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- [Markdown version](/en/blogs/articles/2016/10/27/a-new-normal-for-the-oil-market/index.md)
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## Bibliographic details
- Authors: Rabah Arezki, Akito Matsumoto
- Published: October 27, 2016

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### Overview
- Authors: Rabah Arezki, Akito Matsumoto
- Date: October 27, 2016
- Core thesis: Shale oil production, slower emerging-market growth, and global efforts to cut carbon emissions have created a “new normal” implying oil prices are unlikely to return to pre-collapse highs.

### The "new" oil supply
- Shale-oil production unexpectedly added 5 million barrels per day to supply, contributing to the global supply glut and to the oil price collapse that started in June 2014.
- The price collapse led to a massive cut in oil investment, but production was slow to respond, keeping supply in excess.
- Shale production showed resilience to lower prices, with drillers significantly cutting costs and improving efficiency, enabling major players to avoid bankruptcy.
- Reduced investment is expected to result in lower production by non-OPEC countries in 2016, but production still exceeds consumption.
- Many experts expect oil markets to balance in 2017, albeit with high level of inventory.
- Uncertainties in supply include:
  - The cost associated with extraction.
  - Production from shale "fracklog"—drilled but uncompleted wells that can add to production flows in a matter of weeks, altering short-term production dynamics compared to conventional oil with long lead times.
- OPEC countries and Russia have been increasing output, and Iran’s return to markets has added more supply.
- Recent developments:
  - OPEC members have recently agreed to cut production, but that agreement is yet to be finalized.
  - Recent data suggest shale-oil production may again be more resilient than expected.
  - Anticipation of an OPEC production cut in cooperation with other exporters has boosted prices to levels that will further stimulate output by many shale producers.

### The "new" oil demand
- Falling prices spurred oil-demand growth to a record high of about 1.8 million barrels per day in 2015.
- Demand growth is expected to slow to the trend level of 1.2 million barrels per day in 2016 and 2017.
- Using basic estimates for demand elasticity with respect to price suggests the “price effect” accounts for a 0.8 million-barrel per day increase in demand.
- A sizable share of oil demand growth is attributable to the price drop rather than income gains.
- With limited scope for further declines in prices in dollar terms, future increases in oil demand will depend largely on prospects for global economic growth.
- Demand drivers and risks:
  - Recent years’ demand growth has been driven by China and other emerging-market and developing countries.
  - China accounts for just 15 percent of world oil consumption, but its contribution to oil demand growth is significant because its economy is growing much faster than advanced nations.
  - Further slowdowns in emerging and advanced economies, and structural shifts in emerging economies (notably China’s shift from an investment- and export-led growth model to a domestic-demand-led growth model), can significantly change the demand picture.
- Medium- to long-run risks from climate policy:
  - The transition away from oil and other fossil fuels clouds the outlook for oil demand, although lower prices may delay the transition.
  - Energy policies will have to be altered significantly to meet the goals set at the December 2015 Paris Climate Conference (COP21), and a significant portion of oil reserves will have to remain under the ground and unburned.
  - Lack of clarity about the specific actions needed to achieve COP21 goals adds to uncertainty about the oil-demand outlook.

### Price outlook and market dynamics
- Futures markets point to slight gains in oil prices, but recent shifts in futures-price curves suggest prospects for higher prices have been worsening.
- Downward revisions to global growth forecasts, especially for emerging markets, have offset supporting factors such as price-driven demand growth.
- Turmoil in financial markets and a strong dollar have put downward pressure on oil prices.
- Combined trends—secular drop in petroleum consumption in advanced economies, growth of shale, and slower global growth—point to a “lower for longer” scenario for oil prices.

*Source: A "New Normal" for the Oil Market — Rabah Arezki, Akito Matsumoto, October 27, 2016.*

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## Content in this bundle

- **石油市场的“新常态”; IMF博客**
  - [石油市场的“新常态”; IMF博客 (Markdown version)](/external/chinese/np/blog/2016/102716c.pdf.md){rel="alternate" type="text/markdown"}
  - [石油市场的“新常态”; IMF博客 (PDF)](/external/chinese/np/blog/2016/102716c.pdf){rel="external" type="application/pdf"}
- **原油市場の「新常態」, ラバ・アレズキ 、 松本哲人, 2016年10月27日**
  - [原油市場の「新常態」, ラバ・アレズキ 、 松本哲人, 2016年10月27日 (Markdown version)](/external/japanese/np/blog/2016/102716j.pdf.md){rel="alternate" type="text/markdown"}
  - [原油市場の「新常態」, ラバ・アレズキ 、 松本哲人, 2016年10月27日 (PDF)](/external/japanese/np/blog/2016/102716j.pdf){rel="external" type="application/pdf"}
- **WEOSpecialAPR15**
  - [WEOSpecialAPR15 (Markdown version)](/external/np/res/commod/pdf/WEOSpecialAPR15.pdf.md){rel="alternate" type="text/markdown"}
  - [WEOSpecialAPR15 (PDF)](/external/np/res/commod/pdf/WEOSpecialAPR15.pdf){rel="external" type="application/pdf"}
- **«Новая норма» для рынка нефти, Рабах Арезки и Акито Мацумото, 27 октября 2016 года**
  - [«Новая норма» для рынка нефти, Рабах Арезки и Акито Мацумото, 27 октября 2016 года (Markdown version)](/external/russian/np/blog/2016/102716r.pdf.md){rel="alternate" type="text/markdown"}
  - [«Новая норма» для рынка нефти, Рабах Арезки и Акито Мацумото, 27 октября 2016 года (PDF)](/external/russian/np/blog/2016/102716r.pdf){rel="external" type="application/pdf"}

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## References

- [عربي](http://blog-montada.imf.org/?p=4535)
- [historic collapse](https://blogs.imf.org/2014/12/22/seven-questions-about-the-recent-oil-price-slump/)
- [https://www.imf.org/wp-content/uploads/2016/10/res-oilmarket-chart1.jpg](https://www.imf.org/wp-content/uploads/2016/10/res-oilmarket-chart1.jpg)
- [prospects for global economic growth](http://www.imf.org/external/pubs/ft/weo/2016/02/)
- [https://www.imf.org/wp-content/uploads/2016/10/res-oilmarket-chart2.jpg](https://www.imf.org/wp-content/uploads/2016/10/res-oilmarket-chart2.jpg)
- [lower prices may delay the transition](https://blogs.imf.org/2015/12/02/the-price-of-oil-and-the-price-of-carbon/)
- [https://www.imf.org/wp-content/uploads/2016/10/res-oilmarket-chart3.jpg](https://www.imf.org/wp-content/uploads/2016/10/res-oilmarket-chart3.jpg)
- [lower prices in the past year](https://blogs.imf.org/2016/03/24/oil-prices-and-the-global-economy-its-complicated/)

_Source: https://www.imf.org/en/blogs/articles/2016/10/27/a-new-normal-for-the-oil-market_