Oil supply will continue to exceed demand in 2016 by 1.1 million barrels per day, following massive surplus margins of 2 million barrels per day in 2015 and 0.9 million barrels per day in 2014, said the IEA’s Medium-Term Oil Market Report.
It is hard to see oil prices recover significantly in the short term unless there is an even larger-than-expected fall in non-OPEC oil production or a major rise in demand in 2016, said the report.
The production freeze proposed by Russia and Saudi Arabia is an important agreement among leading oil producing countries, said IEA Executive Director Fatih Birol, but there is no expected significant increase of crude production from these countries any way.
The biggest additional oil increase will come from Iran, an OPEC country, he told reporters.
In the absence of production cuts of all the major players, the impact of output freeze on the market may be limited, he said.
The IEA pointed out that low oil prices carry the risk of insufficient investment in the oil industry. The IEA has regularly warned of the potential consequences of the 24 percent fall in investment seen in 2015 and the expected 17 percent fall in 2016.
“In today’s oil market there is hardly any spare production capacity other than in Saudi Arabia and Iran, and significant investment is required just to maintain existing production before we move on to provide the new capacity needed to meet rising oil demand,” said the IEA.
The risk of a sharp oil price rise as a result of insufficient investment in oil production is potentially as destabilizing as the sharp oil price fall, it added.
Source: Xinhua, February 22, 2016