• Friday, July 19, 2024
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Over-supply will drown world oil market – IEA


The International Energy Association released its Oil Market Report (OMR) for January yesterday, stating that oversupply of oil will drown the market sending prices even lower as demand growth slows and Iran pushes supply into the international market.

Global oil demand flipped from a near five-year high in the third quarter of last year, at 2.1 million barrels per day (mb/d), to a one-year low in the fourth quarter of 1 million barrels per day, due to exceptionally mild temperatures in early part of the winter in Japan, Europe and the United States, along with weak economic sentiment in China, Russia and other commodity-dependent economies.

The report noted that global oil supplies expanded by 2.6 million barrels per day last year, following hefty gains of 2.4 million barrels per day in 2014. By last December, however, growth had eased to 600,000 barrels per day with lower non-OPEC production that pegged below year-earlier levels for the first time since September 2012.

Production from OPEC, whose membership expanded last month with the return of Indonesia, slipped 90,000 barrels a day to 32.28 million a day in December amid slightly lower output from Saudi Arabia and Iraq, according to the report. The agency is of the view that around 300,000 barrels per day of additional crude could be flowing to world markets by the end of the current quarter.

The IEA reported that global inventories rose by a notional one billion barrels in 2014-15, with the fundamentals suggesting a further build of 285 million barrel over the course of this year. A strain on storage infrastructure is predicted in 2016 due to stock build irrespective of significant expansion plans. 

Also global refinery runs averaged 79.5 million barrels per day in the fourth quarter of 2015, was down by 300,000 barrels per day from the estimate in last month’s OMR due to lower-than-expected throughputs in non-OECD Asia except China and a very high maintenance schedule in October.

Bloomberg observed that oil sank to a 12-year low of less than $28 a barrel in London on Monday as the removal of international sanctions over the weekend freed Iran to revive crude exports, threatening to swell a glut created by fellow OPEC members and U.S. shale drillers. Saudi Arabia, the biggest oil exporter, signaled again on Sunday it won’t relent in its strategy to preserve market share even as prices crash.

Iran, the report observed could be the only source of supply growth in OPEC this year as a surge in Iraq fizzles out. This is as a result of the country’s ability to meet the terms of an agreement to curb its nuclear development program culminating in the lifting of international sanctions.

The Persian country alone could account for additional 300,000 barrels a day by the end of the first quarter and 600,000 barrels a day by the middle of the year the IEA said. While that’s below official ministry plans to add 1 million a day by mid-year, it could still be enough to pressure prices further, the agency predicted. The country pumped at a 3 1/2-year high of 2.91 million barrels a day in December, according to the report.

The Oil Market Report (OMR) is a monthly International Energy Agency publication which provides a view of the state of the international oil market and projections for oil supply and demand 12-18 months ahead.

ISAAC ANYAOGU with agency report