Oil prices to fall further in oversupplied market, says IEA

The lifting of the Iranian oil sanctions, discussed in the third part of this series, will also boost strategic ties between India and Iran, and we could see India’s demand for crude oil rise in 2016.

The oil market is faced with the prospect of drowning in oversupply, says the IEA, as it predicts oversupply of 1m barrels a day in 2016. Brent futures dropped 19 cents to $28.57 a barrel after settling up 21 cents, or 0.7 per cent, in the previous session.

Analysts are still holding out for a shake-up in the oil industry, in which the low price of oil pushes out high-cost producers and restores some balance to an oversupplied market.

Oil futures have hit their lowest since 2003 this week as investors worry that a glut of crude is combining with slowing demand due to economic weakness, especially in China.

Oil prices have fallen more than 70% in the past 18 months as exporters around the world pump over a million barrels of crude every day in excess of demand.

North American markets suffered triple-digit losses yesterday and Asian markets are all down this morning, after the price of oil suffered its worst one-day loss since September.

The IEA noted mild temperatures at the outset of winter in the U.S., Japan and Europe lowered demand for oil. It’s having a big impact on global stock markets as well. Global financial markets seem to be overreacting to falling oil prices and the risk of a sharp downturn in China’s economy, Maurice Obstfeld, the International Monetary Fund’s chief economist said on Tuesday.

“However, if Iran can move quickly to offer its oil under attractive terms there may be more “pricing in” to come”, meaning lower oil prices. As oil is priced in dollars, it becomes more attractive for holders of other currencies as the greenback falls.

The IMF report was finalised before crude prices fell some 22% in the first two weeks of the year as traders prepared for Iran to return to the worldwide market.

Even so, the International Monetary Fund forecast included another 17.6% decline in crude prices this year after almost 50% in 2015, and only a partial rebound in 2017.