Oil prices may have rebounded off 12-year lows struck last month, but any hope for a broader recovery in the market would be misplaced, the International Energy Agency (IEA) said on Tuesday, adding that OPEC is responsible for the latest glut of supplies on the market.
The IEA said in its monthly report that “it is very hard to see how oil prices can rise significantly in the short term ... with the market already awash in oil...”
On the contrary, it said “...the short term risk to the downside has increased.”
Photo: Bloomberg
Global oil prices rebounded on bargain-buying in Asia yesterday after the previous day’s plunge. At around 6:20am GMT, US benchmark West Texas Intermediate (WTI) for March delivery was up US$0.48, or 1.72 percent, at US$28.42 and Brent crude for April climbed US$0.50, or 1.65 percent, to US$30.82. WTI plunged 5.9 percent and Brent dived 7.7 percent on Tuesday after the IEA forecast the global oil surplus would be larger than previously expected in the first half of this year.
“The IEA, like many other forecasters, think that the excess could grow if output from the OPEC increases further, a probable outcome given that Iran is now in the process of making a full return to oil the market,” City Index analyst Fawad Razaqzada said in a note.
After the price for the main international oil contract struck a low below US$28 last month, it rebounded to above US$35. The IEA said “before victory over the bearish forces is declared we should look at the main factors driving the optimism.”
It then proceeded to debunk the factors driving the market higher, first among them the prospect of an agreement between OPEC and non-OPEC nations to cut output.
The IEA said “the likelihood of coordinated cuts is very low.”
Another widely held view in the market is that increases will slow in OPEC production, except for Iran which is returning to the market after years of international sanctions, the IEA said.
However, it pointed out that Iraqi production struck a new record last month and that there are indications Saudi Arabia has stepped up shipments.
The Paris-based IEA, which advises oil consuming nations on energy issues, said that OPEC is currently responsible for the glut of supplies hitting the market the past year.
While non-OPEC production levels are roughly flat from one year ago, at 32.6 million barrels per day (mbd) last month, OPEC supplies were up by 1.7 mbd from a year earlier.
“It is OPEC’s business whether or not it makes output cuts either in alone or in concert with other producers but the likelihood of coordinated cuts is very low,” the IEA said. At current levels, OPEC production means oil stocks are likely to increase further, it added.
Another driver of the recent bullishness in the crude market has been the view that low oil prices will boost growth in demand.
However, the IEA said it holds on to its “view that global oil demand growth will ease back considerably in 2016” to 1.2 mbd from a five-year high of 1.6 mbd last year.
It trimmed its forecast for world oil demand for this year by 0.1 mbd to 95.6 mbd.
The IEA, which forecasts a net drop of 0.6 mbd for this year, said that drops in production have so far been slower than the market has predicted.
“Perhaps resilience still has some way to go,” it said.
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