IEA says OPEC deal unlikely, global oil glut to worsen

The global oil glut will continue to worsen in 2016 as declines in U.S production take time, the International Energy Agency (IEA) said in its Oil Market Report for February.

Adding to the rout, the Organization of Petroleum Exporting Countries (OPEC) is also unlikely to reach a deal with non-OPEC members over production cuts.

The IEA expects the market to remain bearish and thinks forecasts on change in the current condition are “speculative,” though it doesn’t believe crude will drop as low as $10 a barrel.

“We retain our view that global oil demand growth will ease back considerably in 2016 to 1.2 mb/d - at 1.2 percent still a very respectable rate - but our analysis so far sees no evidence of a need to revise it upwards,” it said. “We suggest that the surplus of supply over demand in the early part of 2016 is even greater than we said in last month’s OMR.”

Oil has plummeted to below $30/b on higher stockpiles and slow demand. Crude edged higher this month on reports about possible talks between OPEC and non-OPEC members to cut production.

OPEC crude oil output rose by 280 kb/d in January to 32.63 mb/d as Iran, Saudi Arabia and Iraq increased output. Supplies from the group during January stood nearly 1.7 mb/d higher year-on-year.

Declines in non-OPEC output, including US shale, are happening at a pace too slow to boost prices up in the short-term, it added. It estimates that total non-OPEC output will fall by a net 600 kb/d in 2016.

Moreover, supply and demand data for the second half of the year suggests more stock building, by 0.3 mb/d, the Paris-based agency said.

“If these numbers prove to be accurate, and with the market already awash in oil, it is very hard to see how oil prices can rise significantly in the short-term,” it added. “In these conditions the short term risk to the downside has increased.”

Write to Abeer Allam at abeer.allam@argaam.com