Oil Prices Slump

The Paris-based organisation had earlier seen the oil oversupply disappearing in the latter part of 2016, but in its latest report released on Tuesday, it said demand growth was slowing while supply was rising, meaning that the glut was now due to linger “at least through the first half of next year.”

World oil prices slumped by about three per cent yesterday, in response to reports by the International Energy Agency (IEA), which forecast that the oil glut will protract till mid-2017, at least six months longer than it had earlier projected.

While U.S. West Texas Intermediate crude fell $1.39 or 3 per cent to settle at $44.90, Brent crude shed $1.22, settling at $47.10 a barrel.

This is coming as crude oil production in Nigeria dropped the most in August among its peers in the Organisation of Petroleum Exporting Countries (OPEC), paring the gain it recorded in the previous month.

“Oil remains under pressure again today after the IEA reported that oil demand growth will be lower than expected this year,” said Craig Erlam, senior market analyst at Oanda trading group.

In the late European afternoon, US benchmark West Texas Intermediate for delivery in October was down $1.30 at $44.99 a barrel.

Brent North Sea crude for November delivery shed $1.08 to $47.24 a barrel compared with the close on Monday.

The timing of the world oil market’s return to balance is “the big question”, the IEA said in its monthly report, adding that current prices — above $45 — would suggest supply falling and strong demand growth.

“However, the opposite now seems to be happening,” it said. “Demand growth is slowing and supply is rising.”

The trend may fuel speculation of a possible production freeze — aimed at supporting prices — being agreed between OPEC and non-OPEC member, Russia, at a meeting in Algeria later this month.

China and India, which had been key drivers recently of demand growth, are “wobbling”, it said, while a slowdown in the United States and economic concerns in developing countries have also contributed to the surprise development.

Global oil demand is now expected to grow by 1.3 million barrels per day (mb/d) in 2016, to 96.1 mb/d, from its original forecast of 1.4 mb/d growth.

The IEA also trimmed its demand growth forecast for 2017 by 200,000 barrels per day, to 97.3 mb/d.

On the supply side, output fell in August, led by producers outside of the OPEC cartel.

After gains in June and July, global oil supplies dropped by 300,000 barrels per day last month, to 96.9 mb/d.

Non-OPEC supply is expected to rebound next year, after declining this year.

But, the IEA said OPEC production edged up last month to a near-record supply level, which “just about offset steep non-OPEC declines.”

Producers, Saudi Arabia, Kuwait, the United Arab Emirates and Iraq are all at, or near all-time highs, the report said.

“Saudi Arabia’s vigorous production has allowed it to overtake the US and become the world’s largest oil producer,” it added. The US had held the spot since April 2014.

In late 2014, OPEC shifted its strategy to defend market share, rather than price, a move which has hit high-cost non-OPEC producers especially hard. Among them, the United States, formerly the engine of non-OPEC supply growth, has particularly suffered.

Iran, meanwhile, has been “swift” to ramp up its production after the lifting in January of years of nuclear-linked sanctions.

Production by the 14 members of OPEC rose slightly in August to 33.47 mb/d.

The IEA, which advises oil consuming nations on energy issues, said its latest data indicated that the “supply-demand dynamic may not change significantly in the coming months.”

“As a result, supply will continue to outpace demand at least through the first half of next year,” it said. 

“As for the market’s return to balance – it looks like we may have to wait a while longer,” it added.

As a result of the stubborn supply glut, producers have been hurt by a plunge in crude prices from around $100 in mid-2014 to 13-year lows of below $30 at the start of this year.

Analyst Olivier Jakob, of Switzerland-based Petromatrix, said OPEC was “trapped” as non-OPEC supply had been able to adapt to lower prices better than expected.

“The IEA data is also suggesting that an OPEC ‘freeze’ will not be enough to rebalance the market in 2017,” he said in a note to investors.


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