Crude-oil prices could fall even further as the world’s vast oversupply of petroleum only got worse in January with a surge in production from OPEC, a top global energy monitor said Tuesday.
The past month featured the return of Iranian oil after European sanctions were liftedand the failure of the Organization of the Petroleum Exporting Countries to agree on production levels. The cartel flooded the market with an additional 280,000 barrels a day last month, said the International Energy Agency, which tracks oil and gas data for industrialized countries.
0px 0px / 50px 50px transparent;">ENLARGENow, the disconnect between oil supply and consumption is proving worse in 2016 than previously expected, the IEA said.
“It is very hard to see how oil prices can rise significantly in the short term,” the IEA said in its closely watched monthly oil-market report.
The new oil from OPEC almost offset significant declines in production around the rest of the world in January, the IEA said. Non-OPEC supplies slipped by 0.5 million barrels a day, the IEA said, as lower oil prices forced costly North American producers to shut down some of their production
Iran boosted its output to 2.99 million barrels a day in January, the IEA said, the first month since 2012 that its crippled oil industry was free of western sanctions over its nuclear program. The 80,000 barrels a day increase represented the first installment in what Iranian officials say will amount to 500,000 barrels of new oil that the country will send to the market in the next few months
Saudi Arabia also increased its production by 70,000 barrels a day to 10.21 million barrels a day. Meanwhile, Iraq set a new output record of 4.35 million barrels a day thanks to increased production of 50,000 barrels a day.
OPEC members have held high-level talks about changing course and cutting back output in recent weeks, helping oil prices rise to about $33 a barrel. The IEA suggested the rally was a “false dawn” and called the likelihood of OPEC members and other countries like Russia agreeing on a production cut “very low.”
“Persistent speculation about a deal between OPEC and leading non-OPEC producers to cut output appears to be just that: speculation,” the IEA said.
The IEA said there also are ominous signs for oil consumption this year, with “risks to growth in Brazil, Russia and of course slower growth in China.” The IEA said it saw no reason yet to change its demand-growth outlook of 1.2% for the year—a “very respectable rate”—but “economic headwinds suggest that any change will likely be downwards.”
A significant amount of oil being bought these days is headed for storage until oil prices rise or a buyer can be found.
Commercial oil stockpiles rose to more than 3 billion barrels in December, the IEA said. Those inventories will build by 2 million barrels a day in the first three months of 2016, before slowing a bit to 1.5 million barrels a day in the second quarter.
Crude prices have fallen more than 55% since November 2014, when OPEC first said it wouldn’t pull back its own production in response to a surge in output from the U.S. OPEC officials said a production cut wouldn’t help market as it had in the past, but the decision has had long-lasting repercussions, helping to send oil prices to less than $27 a barrel last month.