Mild winter weather and rising supply will keep the crude oil market oversupplied until at least late 2016 and could push the price below its current 12-year lows, according to the International Energy Agency.
The addition of new Iranian supply to a market where production looks set to outpace consumption for a third year in a row could not come at a worse time for crude oil exporters, who are grappling with prices at their lowest in more than a decade.
Brent crude futures have fallen to their lowest level since late 2003, tumbling below $30-barrel, after OPEC announced last month that it would not cut output to halt the price slide despite global oversupply.
The 2016 UK Oil and Gas Collaboration Conference – Aberdeen 14 April
In its latest monthly report, the IEA said: “Although we do not formally forecast OPEC oil production, in a scenario whereby Iran adds 600,000 bpd to the market by mid-year and other members maintain current output, global oil supply could exceed demand by 1.5 million bpd in the first half of 2016.
“While the pace of stock-building eases in the second half of the year as supply from non-OPEC producers falls, unless something changes, the oil market could drown in over-supply.
“So the answer to the question of whether the crude oil price could fall further, the answer is an emphatic ‘Yes.’
The IEA left its estimate of growth in global demand for 2016 unchanged from its previous monthly report at around 1.2 million bpd.
“We conclude that the oil market faces the prospect of a third successive year when supply will exceed demand by 1 million bpd and there will be enormous strain on the ability of the oil system to absorb it efficiently,” the IEA said.
With the world economy slowing, the IEA said it had cut its forecast for 2016 OPEC crude oil demand by 300,000 bpd to 31.7 million bpd.
Iran has said it will raise output by an initial 500,000 bpd now that international sanctions have been lifted, but the IEA said it believes the increase will be of a more modest 300,000 bpd by the end of the first quarter of 2016.