Oil trades below US$29 as glut expands on rising U.S. stockpiles

In its latest monthly report, the International Energy Agency predicted even bigger fall for oil prices this year as the global oversupply is not going to ease any significantly.

Crude futures slumped again in early Asian trade on Wednesday, with USA oil falling to its lowest since September 2003 below $28 a barrel on worries about global oversupply.

WTI for February delivery, which expires Wednesday, slipped 96 cents to close at $28.46 a barrel on the New York Mercantile Exchange.

The result of all of these factors is downward pressure on oil prices, which have already been sliding to lows not seen in more than a decade.

Goldman Sachs said that Iran’s production would rise by 285,000 barrels per day (bpd) year-on-year in 2016 while BMI Research said the rise would by 400,000 bpd.

The IEA predicted on Tuesday that oil prices would fall further this year as market supply is expected to greatly exceed demand.

Investors believe that the return of Iran to the global oil market will not have an impact anytime soon because Iran will require investment and time to modernize of their outdated oil complexes.

In London, meanwhile, Brent North Sea crude for delivery in March tumbled to US$27.11, a low last witnessed in early November 2003. The IEA said growth for 2015 was moderate at 1.2 million bpd.

At its half-yearly policy meeting in December, OPEC decided not to lower its 30 million-barrel-day production quota, as kingpin Saudi Arabia stuck to its strategy of maintaining output in order to push prices down, squeezing out smaller energy players with higher production costs.

This would offset the expected 600,000 drop in supply from producers outside of OPEC.

Analysts also attributed much of the bounce from under $28 a barrel to a brief short-covering rally after oil prices crashed over 20 percent this year, triggering a record volume of short positions in the week through January 12. This accounts for some 27 billion barrels of oil and equivalent natural-gas volumes, the report said, and brings total industry-wide deferred spending for 2015 to $US380 billion. With the world economy slowing the IEA said it had cut its forecast for 2016 OPEC crude oil demand by 300000 bpd to 31.7 million bpd.