Illusion of growth: the IEA found no reason for the recovery in oil prices

“The forecasts that the oil price will fall to $10 per barrel is an extreme point of view, the best days for oil prices ahead,” says a new report by the IEA. But they also recognized that statistical data and assessments of Agency experts from 29 countries consistently refute the argument that oil prices will rise in the short term.

OPEC ramping up production

In conditions of overproduction IEA skeptical about the prospects of higher oil prices. “The market is filled to the brim with oil, and it is difficult to predict what oil prices can increase significantly in the near future”, — said in the report.

The IEA experts believe that in the first half of 2016, the oversaturation of the market will be approximately 1.75 million barrels. in day (a month ago this figure was estimated by the Agency to 1,5 million Barr.).

The IEA warns that the number of “extra” oil on the market will increase further if OPEC will increase production. Last month, according to the Agency, the production of OPEC countries increased by 280 thousand barrels. per day (up to 32,63 million barrels., this is 1.7 million barrels. more in a day than a year ago).

The oil production increases among all key players in OPEC. Oil production in Iraq in January reached a record 4.35 million barrels. and, according to experts of Agency, Baghdad can continue to increase production. Saudi Arabia has increased production to 10,21 million barrels. a day. Production ramps up and returned to the international commodity market after the lifting of international sanctions, Iran — in January, his production has grown on 80 thousand Barr. per day (up to 2,99 million Barr.).

Stocks are rising

In the report the IEA also provides the December data on stocks of oil in storehouses of the developed countries — in this month the inventory is traditionally reduced, but at the end of 2015, they increased by 7.6 million barrels. (up to 3 billion barrels). The report noted that national stocks are now above average at 350 million barrels.

Hopes that demand for oil will spur low commodity prices, also did not materialize due to the slowdown of the largest growing economies in the world — Brazil, Russia and China. The growth in global oil demand in 2016 will be, according to the IEA, only 1.2 million barrels. per day (reaching approximately 95,6 million barrels. a day). For comparison, last year demand increased by 1.6 million barrels. a day. At the same time, world oil supply fell by 0.2 million barrels. a day (to 96.5 million barrels). — this is due to the reduction of oil production by countries outside OPEC (IEA take into account including the production of shale oil in the USA).

This year, production in these countries, according to IEA forecasts, will decrease by 600 thousand Barr. a day (to 57.1 million barrels. a day). “The volume drop, of course, can be higher, and many international oil companies warn about it. But so far it seems that to a significant fall in US production will take a lot of time,” the report said.

It is not necessary, according to the IEA, to count on the possible weakening of the dollar. Despite the fact that raising interest rates in the US in 2016 is unlikely, the dollar remains a strong currency and “enjoys its status of a reliable harbour”. According to the WSJ Dollar Index, the U.S. currency at the end of January strengthened to a basket of 16 world currencies to the highest level since 2002.

“No more than speculation”

According to the IEA, the likelihood that oil-producing countries consistently will reduce oil production, is extremely small. “Apparently, it is no more resistant than speculation. This case OPEC to reduce production or not, do it separately or together with others” — so the IEA’s experts comment on the possible holding of a wide negotiation between members of OPEC and other exporters, including Russia.

That such cooperation is unlikely, they say a recent tour of oil Minister of Venezuela, Eulogio del Pino in the capitals of oil-producing countries. Venezuela is one of the main supporters of a coordinated reduction of production of oil exporting countries, but following the meetings, del Pino with Russian and Saudi counterparts Alexander Novak and Ali al-Naimi wasn’t made any specific statements about plans to reduce oil production.

The Agency makes an unfavorable for oil-producing countries concluded that hopes for rising oil prices is likely to have been “an illusion”.