Oil under pressure as IEA warns could ‘drown’ in supply

Just how low can oil prices go?

While the supply of non-OPEC oil should drop by as many as 600,000 barrels per day during 2016, the comeback of Iran is likely to replace that before the middle of this year. The February contract expired Wednesday at the lowest level since May 2003.

Prices have crashed about 75 percent since mid-2014, hit by a flawless storm of a stubborn supply glut, the slowing global economy and the rebounding United States dollar.

Because of that, world markets might have a surplus per day of as many as 1.5 million barrels during the first six months of 2016. In a report released this week, the agency that helps inform global energy policy said the world could “drown” in oversupply if current factors remain unchanged. There is no sign that US shale oil producers started to cut production in face of the plunging prices.

Brent futures fell by 80 cents to $27.96 a barrel, but dropped as low as $27.70 earlier in the day, not far from Monday’s 12-year trough of $27.67.

Still, with China’s economy growing last year at its slowest pace in 25 years and economists expecting it to lose more momentum in 2016, many analysts see the country’s oil demand growth dropping off as well. “There are considerable uncertainties around the quality and quantity of oil that Iran can offer to the market in the short term and the not inconsiderable challenge of finding buyers willing to take more oil into an already glutted market”, the IEA argues. A report by energy consultancy Wood Mackenzie published on Thursday found oil companies had delayed making decisions on 68 major projects world-wide a year ago.

They were hovering close to a 12-year low.

However, analysts said that the return to the market of Iranian oil will be gradual due to certain constraints.

The IEA forecasts an increase of 285 million barrels to global oil stocks in 2016 following a one billion barrel increase in 2015.

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.