Higher OPEC output to raise global oil surplus, prices to be under pressure – IEA


Photo courtesy: ConocoPhillips

The global oil glut is only going to get worse, pushing prices down further as demand growth slows and Iran and Iraq raise production, the International Energy Agency (IEA) said.

It said in its latest monthly report that supply and demand data for the second half of the year suggests more stock building, this time by 0.3 mb/d. “If these numbers prove to be accurate, and with the market already awash in oil, it is very hard to see how oil prices can rise significantly in the short term,” it said.

“In these conditions the short term risk to the downside has increased.”

The IEA said global oil demand growth in 2016 was forecast to ease back considerably to 12.million barrles/day, pulled down by notable slowdowns in Europe, China and the US, after peaking at a five-year high ot 1.6 million barrels/day last year.

Crude oil prices spiralled lower in January, with brimming stockpiles pushing global benchmarks below $30/bbl, but there was some advance in February.

“Perhaps some of the more fevered forecasts of oil prices falling to as low as $10/bbl are extreme and better days do lie ahead for oil prices. However, before victory over the bearish forces is declared we should look at the main factors driving this optimism,” the IEA said, adding that persistent speculation about a deal between OPEC and leading non-OPEC producers to cut output appears to be just that: speculation.

“It is OPEC’s business whether or not it makes output cuts either alone or in concert with other producers but the likelihood of coordinated cuts is very low. This removes one driver of bullishness.”

IEC negated four other drivers of bullishness — a widely-held view is that OPEC production, other than Iran, will not grow as strongly in 2016 as it did in 2015, that oil demand growth will receive a boost from the collapse in oil prices to below $30/bbl, that a weak dollar will reduce costs of imports, the expected fall in non-OPEC output – and said that the surplus of supply over demand in the early part of 2016 was even greater than what was projected in its previous report.

“On the assumption – perhaps optimistic – that OPEC crude production is flat at 32.7 mb/d in Q116 there is an implied stock build of 2 mb/d followed by a 1.5 mb/d build in Q216,” it said.




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