Oil prices may fall further this year, the IEA says

It said in its monthly report Tuesday that excess global supply may reach 1.5 million barrels per day during the first half of the year.

In short, it predicted that the world “could drown in oversupply” and that “enormous strain” on prices would be maintained, says Financial Times.

U.S. commercial crude oil and gasoline stocks were forecast to have risen by 3 million to 485.6 million barrels last week, a preliminary Reuters survey taken ahead of weekly inventory data, showed on Tuesday.

Iranian official statements about delivering an additional 500 kb/d of oil to the global market immediately after the suspension of sanctions harm markets, Sohbet Karbuz, Director of Hydrocarbons, France, Mediterranean Energy Observatory (OME) believes.

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.

“Can it go any lower?” the IEA asked.

Oil sank to a 12-year low of less than $US28 a barrel in London on Monday as the removal of global sanctions over the weekend freed Iran to revive crude exports, threatening to swell a glut created by fellow OPEC members and USA shale drillers. Saudi Arabia is the largest exporter of oil in the world.

Moving forward into 2016, the IEA said it predicts demand growth will moderate to around 1.2 million barrels per day from nearly 1.7 million barrels a day in 2015.

Exceptionally mild temperatures in Japan, Europe and the USA, alongside weak economic sentiment in China, Brazil, Russia and other commodity-dependent economies, led to the volatile change in demand growth between the third and fourth quarters, the IEA said.

In addition, dollar strength will make oil imports more expensive for many countries, further dampening demand, the IEA said.

OPEC characterizes 2016 as the year “when the rebalancing process starts; after seven straight years of phenomenal non-OPEC supply growth, often greater than 2 million bpd, 2016 is set to see output decline as the effects of deep capex cuts start to feed through”.

Analysts expect supply to continue to outstrip demand over the next two years, which would keep prices low. The newly liberated country is expected to pump fresh reserves of oil into an already oversupplied market, making oil even cheaper.