January 22-2016
The Islamic Republic announced Monday it had boosted oil output by 500,000 barrels a day and the International Energy Agency (IEA) Tuesday said the world oil market “could drown in over-supply.”
Rokneddin Javadi, managing director of the National Iranian Oil Co., said Monday, “The order to increase production [by 500,000 barrels a day] was issued today.”
On Tuesday, the IEA’s monthly report asked of the oil price: “Can it go any lower?” and then answered its own question: “Unless something changes, the oil market could drown in over-supply. So the answer to our question is an emphatic yes. It could go lower.”
The price of an OPEC barrel on Monday was just $23.58, a drop of 26 percent in the 10 market days of this year. That was the lowest daily price for an OPEC barrel in almost 13 years—since April 28, 2003.
The IEA said Iran’s return to the oil market, a major reason for continued price weakness, has probably not been fully factored into prices yet, contradicting many financial analysts.
Iran is facing “the not inconsiderable challenge” of finding buyers willing to take more oil into an already glutted market, the IEA said. Iran did not say if it had signed-up buyers for any of the added 500,000 barrels a day it says it is now pumping.
Growth in world demand for oil, which rose in 2015 more than most years this century, is expected to ease off. Worldwide demand for oil is now expected to rise by 1.3 percent in 2016, the IEA said, a sharp slowdown after a 1.8 percent increase in 2015.
“We conclude that the oil market faces the prospect of a third successive year when supply will exceed demand by 1 million barrels per day and there will be enormous strain on the ability of the oil system to absorb it efficiently,” the IEA said.
Excess supply could even reach 1.5 million barrels per day during the first half of the year, the IEA said.
Low oil prices, while hurting both oil producers and oil companies, can be positive for consumers and non-oil businesses and therefore for global growth. But on Tuesday, the International Monetary Fund (IMF) warned that the oil price collapse was proving more of a drag on the global economy than a stimulus.
The financial strains on exporters and the deep investment cutbacks by the oil industry are more than offsetting the expected gains from cheap oil enjoyed by key importers like Japan and the United States, the IMF said.
In addition, demand for oil from China, which usually gives support to the oil price, will level off this year as economic growth there slows, it said.