Oil price to fall further as market could drown in over-supply

But oil prices remained near 12-year lows as a global glut was set to last until at least late 2016, according to the International Energy Agency, which advises industrialized countries on energy policy.

The IEA predicted on Tuesday that oil prices would fall further this year as market supply is expected to greatly exceed demand. “They are selling oil for cashflow not for profit”, said Jonathan Barratt, chief investment financial officer at Sydney’s Ayers Alliance.

Just how low can oil prices go?

Oil is down 23% this year amid volatility in Chinese markets and an expected surge in Iranian exports. “Our assessment is that around 300,000 b/d of additional crude could be flowing to world markets by the end of the current quarter”.

Additionally, the IEA says it increasingly looks as if oil-market demand will decline in 2016, leaving markets even more stretched.

Oil inventories will swell by another 285m over the course of this year, the watchdog said in its first review of oil markets in 2016.

The strong dollar meanwhile makes dollar-priced crude more expensive for buyers using weaker currencies.

That, in turn, has strained oil companies worldwide, sparking stock sell-offs last week and costing hundreds of thousands of jobs in the energy sector a year ago.

Brent crude oil prices shot up 2.1 percent in early trading to recover to $29.56 per barrel in NY. Indeed, some experts believe that Saudi Arabia is happy to see the crude price tumble in a bid to choke of oil production from shale oil deposits (by fracking) and strengthen its hold on global oil production.

U.S. crude fell 49 cents to $US28.93 per barrel, after touching a high of $US30.21.

On whether the oil price could fall further this year, the agency said: “The answer to our question is an emphatic yes”.

Iran will likely be the only source of growth in supply for OPEC in 2016 as an Iraqi surge fizzles out, said the IEA.

Iran has made it clear that once sanctions are lifted it is set to significantly boost its oil output in order to increase government revenues.

In the first comments by an Arab Gulf member of OPEC about Iran since most sanctions were lifted, Suhail bin Mohammed al-Mazroui said any new production that comes into the market would delay the time for the market to balance itself.

Iranian officials have said the country was preparing to increase production by 500,000 barrels a day.

Iran may also encounter difficulties because some of its oil infrastructure may need fix and replacement, while it may take time for its idle oilfields to be ramped up to full production potential, it said.