LONDON (Reuters) - Oil production in the United States will reach a record high by 2021 as efficiency gains help domestic producers to combat the low prices that are likely to force hefty output cuts this year and next, the International Energy Agency (IEA) said on Monday.

A worker walks past a pump jack on an oil field owned by Bashneft company near the village of Nikolo-Berezovka, northwest from Ufa, Bashkortostan, Russia, in this January 28, 2015 file photo. REUTERS/Sergei Karpukhin/Files

After an initial dip this year and next, U.S. output is expected to climb to 14.2 million barrels per day (bpd), the IEA said in its medium-term outlook, citing the “free-for-all” that has come to characterize today’s oil market.

U.S. shale oil was the main target of OPEC’s 15-month-old policy to pump as much crude as possible to claw back market share after the boom in so-called light, tight oil (LTO).

Production of shale oil is expected to drop by 600,000 bpd this year and a further 200,000 bpd in 2017 before recovering to 5 million bpd in 2021. That would be an increase of 770,000 bpd from 2015 output.

“Anybody who believes that we have seen the last of rising LTO production in the United States should think again; by the end of our forecast in 2021, total U.S. liquids production will have increased by a net 1.3 million bpd compared to 2015,” the IEA said.

The extent of the temporary decline in U.S. shale oil production is likely to be such that it could help to nudge the market into balance in 2017 after several years of huge surpluses.

“Only in 2017 will we finally see oil supply and demand aligned, but the enormous stocks being accumulated will act as a dampener on the pace of recovery in oil prices when the market, having balanced, then starts to draw down those stocks,” the IEA said in its report.

MARKET ‘FREE-FOR-ALL’

An agreement this month between major OPEC and non-OPEC producers to freeze output at January’s levels to bolster the oil price was viewed as unlikely to have any significant short-term impact.

Global supply is expected to rise by 4.1 million bpd between 2015 and 2021, compared with growth of 11 million bpd between 2009 and 2015, the IEA said.

“In today’s oil world, anybody who can produce oil sells as much as possible for whatever price can be achieved,” the agency said.

“Just a few years ago such a free-for-all would have been unimaginable, but today it is the reality and we must get used to it, unless the producers build on the recent announcement and change their output maximisation strategy.”

The pain of oil prices falling to about $30 a barrel -- their lowest since 2003 -- has been widespread, but it has hit OPEC countries particularly hard.

At current crude prices the IEA estimates that oil export revenue for OPEC as a whole will drop this year to $320 billion from a peak of $1.2 trillion in 2012 and $500 billion last year.

The report forecast OPEC crude oil production capacity would rise by only 800,000 bpd by 2021 as low oil prices force delays to development projects in the early period of the forecast.

“Iran, now free of nuclear sanctions, emerges as the biggest source of growth within OPEC over the six-year forecast period,” the IEA said, adding that it will not be enough to supplant Iraq as OPEC’s second-biggest producer behind Saudi Arabia.