IEA says oil market may 'drown in oversupply' in 2016

Tue Jan 19, 2016 8:23pm EST
 
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By Amanda Cooper

(Reuters) - Unseasonably warm weather and rising supply will keep the crude oil market oversupplied until at least late 2016 and could push the price below its current 12-year lows, the International Energy Agency said on Tuesday.

The addition of Iranian supply to a market where production looks set to outpace consumption for a third year in a row could not come at a worse time for crude oil exporters, who are grappling with prices at their lowest in more than a decade.

Brent crude futures LCOc1 have fallen to their lowest level since late 2003, tumbling below $30 a barrel, after OPEC said in December it would not cut output to halt the price slide despite global oversupply.

The IEA, which issues regular reviews of the health of the energy market, said more price weakness could lie ahead as a result.

"Although we do not formally forecast OPEC oil production, in a scenario whereby Iran adds 600,000 bpd to the market by mid-year and other members maintain current output, global oil supply could exceed demand by 1.5 million bpd in the first half of 2016," the agency said in a monthly report.

"While the pace of stock-building eases in the second half of the year as supply from non-OPEC producers falls, unless something changes, the oil market could drown in over-supply. So the answer to our question is an emphatic yes. It could go lower."

Responding to Tehran's compliance with a nuclear deal, the United States and other major powers have revoked international sanctions that sharply cut Iran's oil exports.

Warm winter weather around the world cut global oil demand growth to a one-year low of 1 million barrels per day in the fourth quarter of 2015, down from a near five-year high of 2.1 million bpd in the third quarter.   Continued...

 
A service truck drives past an oil well on the Fort Berthold Indian Reservation in North Dakota, November 1, 2014.   REUTERS/Andrew Cullen