International Energy Agency Says Oil Prices Fall May Affect Global Production

The International Energy Agengy (IEA) has reported that global oil prices have fallen again as higher output is not commensurate with demand. Brent crude fell $2.72 to $86.17 a barrel before seeing a slight recovery, while US crude dropped $1.75 to $83.99.

The price of Brent has fallen by 20% since the summer on concerns of oversupply, as output increases and demand wanes.

“Recent price drops appear both supply and demand driven,” the IEA said.

“Further oil price drops would likely be needed for supply to take a hit – or for demand growth to get a lift.”

IEA says that further decline could threate global production that will impact negatively on several projects. The US agency, in its monthly report released on Tuesday, said nearly 3% of global oil production is vulnerable to cuts.

Nigeria benchmarks its budget against oil prices, but with a benchmark of $77.5 for 2014, the fiscal position is not yet threatened. Oil prices have tumbled from above $115 per barrel to below $90 this year.

“All told, roughly 2.6 million barrels per day of world crude oil production comes from projects with a breakeven price in excess of $80 per barrel,” the report said.

“Places as diverse as onshore China, offshore shallow-water Malaysia, Nigeria, conventional onshore U.S., shallow-water UK and onshore conventional Russia have significant amounts of high break even production,”

About 4% of shale oil production requires a break even price of more than $80 per barrel, the IEA said, noting that a large proportion of deepwater exploration operations have high breakeven rates.

“Some 8 percent of deepwater crude oil production is adjudged to require a breakeven of $80 per barrel or higher… totaling some 1.05 million bpd or 1.1 percent of liquid production,”the Agency said.

“For ultra-deepwater alone (more than 1,500 meters), the results are, perhaps surprisingly, that very little of current output from those depths, less than 1 percent, requires such a breakeven price.”

More than 80 percent of ultra deep-water production is based in Brazil and the U.S. Gulf of Mexico, and cost discipline for these projects ensures they tend to have lower breakeven levels than do many deepwater projects

So far, the Organisation of Petroleum Exporting Countries (Opec), which produces about 40% of the world’s crude oil, has shown no signs of reducing supply