Crude plunges as IEA warns of lower oil demand in 2016

Global oil markets will remain oversupplied through 2016 as demand growth slows and OPEC producers keep their taps wide open, the International Energy Agency said Friday.

West Texas Intermediate for January delivery was at US$36.32 a barrel on the New York Mercantile Exchange, down 44 cents.

Crude prices remained at levels not seen since 2009 in early Asian trading on Friday as oil output in the Middle East continued to rise despite an existing global glut.

“Global inventories are set to keep building at least until late 2016, but at a much slower pace than observed this year”, the Paris-based IEA said in its latest monthly report. The report highlighted that OPEC production increased by 230,100 bpd (barrels per day) to 31.7 MMbpd (million barrels per day) in November 2015, as compared to production in October 2015.

“Non-OPEC growth year-on-year is grinding to a halt, so some of the effects from low oil prices are starting to appear”, said Amrita Sen, chief oil analyst at consultants Energy Aspects Ltd.in London.

Banks such as Goldman Sachs have said oil prices could fall to as low as $20 per barrel as the world might run out of capacity to store unwanted oil.

The IEA said there’s mounting evidence that OPEC’s strategy is working as crude production outside of the group’s 13 exporters has fallen and is projected to fall by 600,000 barrels a day next year.

WTI entered the $35 territory for the first time since February 2009.

OPEC production, which has surged since the policy shift of November 2014 led by Saudi Arabia and Iraq, is far higher than forecast demand.

“Most of this is driven by the sharp decline in oil prices given that there’s no major change in Fed expectations”, said Cheng Chen, interest rates strategist at TD Securities in NY.

“Oil prices haven’t stabilised yet so we can easily enter a wait-and-see mood”.

For the first time in decades, OPEC oil ministers dropped any reference to the group’s output ceiling, highlighting disagreement among members about how to accommodate Iranian barrels once Western sanctions are lifted.

OPEC has effectively been “pumping at will” since Saudi Arabia convinced fellow cartel members a year ago to refrain from supply cuts and defend market share against the rapidly growing production in United States shale oil fields and Russian Federation.

Friday was a weak day for many global markets.

That spurred more selling of shares connected to the oil patch – exploration houses, service firms, pipeline operators and the rest – pulling down markets from Asia to the Americas.

The dollar fell against the euro as concerns over weak commodity prices and the yuan’s slump overshadowed solid US retail sales data.

At 1700 GMT the Dow Jones Industrial Average was off 1.35 percent at 17,338.24 points with the broad-based S&P 500 and the tech-rich Nasdaq Composite Index similarly heading south.