IEA predicts further oil price slump

Brent crude traded near a 12-year low in London, briefly dipping below $28 a barrel, after the lifting of worldwide sanctions on Iran paved the way for increased supply amid a global glut.

Marking a 13-year low, the price of the Organisation of Petroleum Exporting Countries (OPEC) basket of twelve crudes stood at $23.58 a barrel on Monday, compared to $24.74 on the previous Friday, said the organisation’s secretariat said.

WTI for February delivery fell as much as $1.06, or 3.6 percent, to $28.36 a barrel on the New York Mercantile Exchange.

At its peak, in the second quarter of 2011, Iran was exporting more than 2.7 mb/d globally, about one quarter of which went to European Union countries.

Iran is beginning efforts to boost output and exports by 500,000 barrels a day now that restrictions have ended, Amir Hossein Zamaninia, deputy oil minister for commerce and global affairs, said Sunday.

And yet, after many Western sanctions against Iran were lifted during the weekend, Iranian oil officials said they would quickly be ramping up exports by 500,000 barrels a day.

An increase in supply and weakening demand growth will ensure there is an overabundance of oil until late 2016 at the earliest, the IEA said in its January report.

“The oil price puts stresses on oil exporters… but there is a silver lining for consumers worldwide, so it’s not an unmitigated negative”.

According to industry analysts, the price of crude oil has reached this reduced value because of oversupply caused by concerns regarding Iran. The exact timeline for that is still unknown, but many say it is adding to the bearish sentiment engulfing the market, at least in the short term.

OPEC predicted in its monthly oil report that 2016 would be “the year when the rebalancing process starts”.

Capital Economics’ analysts expect oil prices to rise from less than $30 per barrel at present to $45 per barrel by the end of this year.

With the sanctions lifted, Iran is now able to sell unlimited amounts of oil, where previously it could only sell limited amounts to a few Asian countries.

The world is set to “drown” in oil as Iran turns on the pumps and its rivals in the Middle East remain intent on smashing competitors out of a low price world, the globe’s energy watchdog has warned.

All of these factors are applying considerable pressure to oil prices from the supply and demand sides and will force prices lower for the foreseeable future.

Overall, Opec production is now 1.06m barrels a day higher than at the same time last year, at a seven year high of 32m barrels a day.