A global market glut and bearish economic prospects are set to keep crude oil prices under pressure until at least late 2016, the International Energy Agency (IEA) said in its monthly report on Tuesday.
If Iran follows up on its promise to add 500,000 barrels per day (bpd) to the market, global oil supply could surpass demand by 1.5 million barrels per day (mbd) in the first half of 2016.
“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,” the Paris-based agency added.
IEA, however, said it believes Iran’s increase will be of no more than 300,000 bpd by the end of Q1-2016.
“There are considerable uncertainties around the quality and quantity of oil that Iran can offer to the market in the short term and the not inconsiderable challenge of finding buyers willing to take more oil into an already glutted market,” it added. “However, if Iran can move quickly to offer its oil under attractive terms, there may be more ‘pricing in’ to come.”
Adding to the rout, fundamentals currently suggest a further build of 285 million barrels over the course of 2016, after global inventories rose by 1 billion barrels in 2014-15.
“Despite significant capacity expansions in 2016, this stock build will put storage infrastructure under pressure and could see floating storage become profitable,” the IEA said.
An oversupplied market, rising inventories, and negative economic forecasts in China, Brazil, and Russia have already dragged oil prices to 12-year lows this month. Since OPEC said in December it would not cut production in a bid to maintain its market share, Brent Crude futures have continued in their downward spiral, reaching below $30 a barrel this week.
Write to Reem Abdellatif at reem.a@argaam.com and Abeer Allam at abeer.allam@argaam.com
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