LONDON The upward trend in oil prices is not expected to last long this year, according to the International Energy Agency (IEA) which foresees oversupply of crude due to higher OPEC production and lower offtake, resulting in further negative price trend.
"Having peaked, at a five-year high of 1.6 million barrels per day in 2015, global oil demand growth is forecast to ease back considerably in 2016, to 1.2 million barrels per day (mb/d), pulled down by notable slowdowns in Europe, China and the United States," Paris-based IEA said in its monthly market report released Tuesday.
Global oil supply dropped 0.2 mb/d to 96.5 mb/d in January, as higher Organisation of the Petroleum Exporting Countries (OPEC) output only partly offset lower non-OPEC production. Non-OPEC supplies slipped 0.5 mb/d from a month earlier to stand close to levels of a year ago. For 2016 as a whole, non-OPEC output is expected to decline by 0.6 mb/d, to 57.1 mb/d.
In contrast, crude oil output by OPEC rose by 280,000 barrels per day in January to 32.63 mb/d as Saudi Arabia, Iraq and a sanctions-free Iran all turned up the taps. Supplies from the group during January stood nearly 1.7 mb/d higher year-on-year.
"With the market already awash in oil, it is very hard to see how oil prices can rise significantly in the short term. In these conditions the short term risk to the downside has increased," the IEA said in its report, calling the recent rise in the price of Brent crude to $33.31 a barrel from January's 12-year low of $27.15 a barrel a "false dawn".
The crude prices are far below the post-financial crisis peak of $112 a barrel, reached in June 2014.
The surplus of supply compared to demand in early 2016 was greater than projected by the IEA, a leading energy think tank that advises the developed nations.
The IEA has projected rise in oil stocks by two million barrels a day in the first quarter and 1.5 million barrels a day in the following three months before falling to around 1.2 million barrels a day later this year.
The IEA has forecast that stock building could continue in the second half of 2016 at a rate of 300 million barrels a day in demand growth.
The OECD commercial stocks built counterseasonally by 7.6 million barrels in December to stand at 3 012 million barrels at month end, which is 350 million barrels above average. Refined products covered 32.3 days of forward demand, 0.1 day above the level at end-November. Preliminary information indicates that inventories have continued building into January.
Sharing concerns that oil prices may not rise and settle at a higher level has led the OPEC group to start dialogue with other oil producing nations to reduce supply even as indications point to a further rise in OPEC output this year.
Both Iraq and Iran have increased production while preliminary data suggests that even Saudi Arabia's shipments had increased.