IEA Sees Global Oil Glut Worsening

IEA Sees Global Oil Glut WorseningIEA Sees Global Oil Glut Worsening

The world will store unwanted oil for most of 2016 as declines in US output take time and OPEC is unlikely to cut a deal with other producers to reduce ballooning output, the International Energy Agency said.

The agency, which coordinates energy policies of industrialized countries, said that while it did not believe oil prices could follow some of the most extreme forecasts and fall to as low as $10 per barrel, it was equally hard to see how they could rise significantly from current levels, Reuters reported.

The Paris-based IEA trimmed its forecast for 2016 oil demand growth, which now stands at 1.17 million barrels per day following a five-year high of 1.6 million in 2015.

It cut its call on OPEC crude for 2016 by 100,000 bpd to 31.7 million bpd. That figure is much lower than OPEC's January output of 32.63 million bpd.

"Persistent speculation about a deal between OPEC and leading non-OPEC producers to cut output appears to be just that: Speculation. It is OPEC's business whether or not it makes output cuts either alone or in concert with other producers, but the likelihood of coordinated cuts is very low," the IEA said.

Oil prices collapsed over the past 18 months to below $30 a barrel from as high as $115 as Saudi Arabia, the top OPEC producer, opened its taps to drive higher-cost producers such as US shale companies out of the market.

Now that it is suffering a colossal budget deficit without driving out shale producers and harming its rival Iran, Saudi Arabia is eager to save face and join forces with non-OPEC producers to stop oil prices from plunging further.

Low oil prices have spurred global demand but it was not enough to absorb all crude produced. As a result, unwanted oil went into storage, leading to record global stockpiles of over 3 billion barrels.

US shale oil output has started to decline because of low prices and OPEC has said it sees the market rebalancing sometime later in 2016 when demand finally meets supply.

But the IEA said supply may still exceed demand throughout 2016 and added it saw non-OPEC output falling by just 0.6 million bpd in 2016.

The agency also said it saw the dollar remaining strong, meaning more downward pressure on oil prices.

With weaker global oil demand, likely new gains in Iranian output, low chances of an OPEC deal, resilient US production and a strong dollar, IEA said the global oil glut was only poised to worsen.

It said that even if OPEC production remained flat, global stocks would build by 2 million bpd in the first quarter, followed by a 1.5-million-bpd build in the second quarter.