The world could face an oil supply shortage by the end of the decade, triggering large swings in the price of the commodity, the International Energy Agency has warned.

In its annual publication World Energy Outlook, detailing expectations for global energy trends, the IEA warned that the recent low price of oil could have serious ramifications within years.

A barrel of Brent crude has more than halved in price since early 2014 from $112 (£90) to around $44 in mid-November this year, having fallen to $32 earlier in the year amid oversupply.

The IEA said this was deterring oil companies from investing in new oilfields, a trend it said could turn the global oil glut into a supply shortage within years.

Between 2000 and 2014, oil companies approved an average of $15bn of new projects a year but that figure fell to just $6.5bn last year, a level not seen since the 1950s.

“As things stand, two years of low approvals is manageable but what we warn about is if investment stays low in 2017,” said Tim Gould, one of the report’s authors.

He said the drop-off in investment would be felt in a few years’ time, when projects that never got off the ground due to the low oil price would otherwise have come to fruition.

“An unprecedented effort would be required to make up lost ground,” he said. “We’re talking now about a gap towards the end of the decade and in the 2020s.”

The oil price has fallen again in the past month, as the Opec group of oil-producing countries struggles to reach agreement on limiting production.

But the IEA said any future supply shortage would force the price of oil up again, triggering instability in global oil markets.

“Without a pickup in investment, or a slowdown in demand, the stage may be being set for the next boom and bust cycle for oil,” its report said.

While an oil shortage might seem like good news for environmental campaigners, the IEA warned this may not be the case.

“Supply shortfalls, and any accompanying price instability, would undoubtedly complicate the transition towards a lower carbon, more sustainable, global energy system.”

But it said low oil prices had accelerated the decline in fossil fuel subsidies, as governments had less need to spend taxpayers’ money to keep fuel costs down.

Fossil fuel subsidies slumped from $500bn in 2014 to $325bn last year, compared with subsidies for renewable energy, which reached $150bn.

The IEA issued a range of long-term predictions on the oil price, depending on how quickly the world adopts low-carbon policies.

If countries do not implement new green policies, a barrel of Brent crude could rise to $150 by 2040, it predicted, whereas a huge investment in renewables could see it limited to $80.

The IEA’s lowest-carbon scenario envisages a sea change in global energy use, including a massive increase in the number of electric vehicles on the road, from 1.3m today to 710m by 2040.