The International Energy Agency (IEA) has announced that the recent increase in oil prices should not be greeted with optimism given that the oversupply of crude is expected to worse.
International Energy Agency announces worsening of crude oil oversupply
The energy agency expects that oil supply will grow by two million barrels a day in the first quarter of 2016 and by 1.5 million barrels a day in the three months that follow.
January saw Brent crude plunge down to $27.67, a historic 13-year low, compared to its $112 level in 2014.
The IEA predicts that stockpiling could continue into late 2016 at 300 million barrels a day.
In a statement, the agency said, ‘If these figures are accurate and as the oil glut continues to wash over the market, it is very difficult for oil prices to rise significantly even in the short term.’
At the same time, demand for oil is set to continue on a downward decline, with the energy agency predicting that demand will decline down to 1.2 million barrels a day in 2016, up from 1.6 million barrels a day a year earlier.
The agency was also skeptical of the recent rise in oil prices, terming it a ‘false dawn’. Instead, it asserted that the risk of weaker oil prices would continue to be exacerbated by several factors.
The IEA was also doubtful that the giant oil cartel, OPEC, was negotiating with other oil producing countries to lower supply.
The agency further said that OPEC countries would not reduce output this year, indicating that Iraq’s output had skyrocketed as of January. At the same time, Iran has upped production following the lifting of sanctions while data elsewhere shows Saudi Arabia too has increased output.