The price of crude will stay in the cellar for a while thanks in large part to the glut in oil markets, according to a report published Tuesday by the International Energy Agency (IEA).
The drop in the price of crude — which has plummeted more than 70 percent since 2014 — has prompted the oil industry to grasp for a silver lining.
Oil speculators have pointed to rumors that the Organization of the Petroleum Exporting Countries (OPEC) may rein in production, and speculated the demand for oil might pick up, as reason to be optimistic about the future of oil prices.
Unfortunately for speculators, IEA’s report is advising the oil industry not to get its hopes up.
“Persistent speculation about a deal between OPEC and leading non-OPEC producers to cut output appears to be just that: speculation,” the group’s report notes.
Indeed, massive amounts oil are rifling through the market at a breakneck speed thanks in part to increases in production from the OPEC nations, and the demand for oil simply cannot keep up with the crude dump.
IEA has upped its forecasts of how much global oil supply will trump demand over the first half of 2016. The report further notes that oil producers will pump out 1.75 million barrels of oil more than demand requires.
Oil supply in the U.S. is bubbling over at levels not seen since the former President Herbert Hoover’s administration in the early 1930s.
“Another widely-held view is that OPEC production, other than Iran, will not grow as strongly in 2016 as it did in 2015,” the IEA report goes on to note.
The report continues: “Although it is still early in the year, Iraqi output in January reached a new record and it is possible that more increases could follow. Iran has ramped up production in preparation for its emergence from nuclear sanctions and preliminary data suggests that Saudi Arabia’s shipments have increased, ” thereby killing off a possible bullish market on oil.
OPEC’s refusal to cut production, Iraq’s record-setting oil output thus far in 2016, and the lifting of sanctions on Iran’s oil production, will likely mean oil prices are going nowhere, the group states.
Since having economic sanction lifted, Iran has opened up its oil spigots, increasing its crude production by 80,000 barrels a day to 2.99 million.
The report added: “With the market already awash in oil, it is very hard to see how oil prices can rise significantly in the short term.”
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