Oil companies' lean investment over the past two years as prices struggled could trigger a return to demand outstripping supply and sharp rise in pricing volatility by 2020, the International Energy Agency said in its five-year oil market forecast Monday.

The report, Oil 2017, predicts three years of balance for the market but a drop in supply growth as companies' spare production capacity falls to a 14-year low by 2022. The agency expects to see U.S., Canada and Brazil leading production growth, which could stall if investments in bringing production capacity back online, which have lagged in 2017, do not increase. In 2016, companies spent $450 billion worldwide on upstream projects, about 25% less than they need to meet demand growth and fill in for the decline in existing oil fields.

U.S. shale oil production will compose the bulk of new supplies, dependent heavily on price. Growth of 1.4 million barrels per day could occur by 2022 at price around $60 per barrel. At $80 per barrel, it could grow by 3 million barrels per day in five years and at $50 per barrel, it could fall starting around 2020.

Demand meanwhile will reach 104 million barrels per day by 2022, up by 7.3 million barrels per day, with all of the growth coming from developing countries and Asia and demand in India starting to outpace China, leading to a tight market.

"We are witnessing the start of a second wave of US supply growth, and its size will depend on where prices go," said Dr Fatih Birol, the IEA's Executive Director. "But this is no time for complacency. We don't see a peak in oil demand any time soon. And unless investments globally rebound sharply, a new period of price volatility looms on the horizon."

Platts simultaneously released a survey Monday showing that OPEC countries had reached 98.5% of their 1.2 million barrels per day in combined cuts agreed to late last year, increased from 91% in January. Saudi Arabia has curbed more than its agreed upon production, while other OPEC countries have not met their targets, such as Venezuela, the UAE and Iraq.

Iran is unlikely to cut back production without further investment, which has been crippled by U.S. sanctions and not yet releasing details of its new petroleum contract.

In February of last year, oil prices plunged below $27 per barrel as a glut in production flooded market. At the time, the IEA said in a monthly report that it saw no significant rise in prices over the short term. Oil stocks lost roughly 36% from their high in June 2014 through their low in September 2015, but soared 27% in 2016.

The S&P 500 sector rose 0.3% on Monday, bringing its year-to-date decline to 5.2%.

In the fourth quarter stock purchasing, investors tracked by GuruFocus favored: Chesapeake Energy Corp. ( CHK ), Ensco PLC ( ESV ), Kinder Morgan Inc. ( KMI ), Occidental Petroleum Corp. ( OXY ) and Schlumberger Ltd. ( SLB ).

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.