Oil prices rose on Tuesday as data showed Chinese oil demand probably hit a record high in 2015, but contracts remained near 12-year lows as the International Energy Agency (IEA) said the market should stay oversupplied this year.
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Iran, which produces 2.9 million barrels of oil a day and is believed to be holding millions more onshore and at sea, could increase the globe’s surplus by 50 to 60 percent by midyear as it aims to retain and reclaim market share.
“It seems to be a healthy upside correction in an otherwise downtrending market”, said Tamas Varga, oil analyst at London brokerage PVM Oil Associates. USA crude futures were up 30 cents at $29.72 a barrel, reverting to a discount to Brent prices. It traded as high as $30.24, rebounding from $27.67 on Monday, its lowest since 2003.
Total SA Chief Executive Patrick Pouyanné on Tuesday said the French oil major is likely to report a 20 per cent fall in profit for 2015 due to the collapse in oil prices.
Slowing growth in China has been a factor in falling demand.
This means global oil supply could exceed demand by 1.5 million barrels a day in the first half of 2016, the IEA said.
Crude oil prices have plunged over the last 18 months on vast new oil supplies from inside and outside the Organization of the Petroleum Exporting Countries.
Demand more than halved from 2.1m barrels a day in the third quarter, near a five-year high, to a year low of 1m barrels a day in the final quarter.
“I think the biggest problem for crude at these levels is storage and supply, other things are ancillary – that’s giving the people who are shorting it confidence”, said hedge fund manager Michael Corcelli.
Away from the oil market, Iran’s return onto the global economic stage after a decade-long hiatus is expected to have momentous consequences and not only for the neighbouring countries, whose markets tumbled following news sanctions over Tehran had been lifted.
Production from OPEC, whose membership expanded last month with the return of Indonesia, slipped 90,000 barrels a day to 32.28 million a day in December amid slightly lower output from Saudi Arabia and Iraq, according to the report.
Iranian officials have said the country was preparing to increase production by 500,000 barrels a day.
“At the moment, you do it by necessity because you have no home for your oil rather than as a trading position”, the trader said, adding that “people won’t do it willingly” until contango deepens and freight costs ease.
“Unless something changes, the oil market could drown in over-supply”, said the IEA. In EIA’s January Short-Term Energy Outlook (STEO), which assumed implementation day to occur this quarter, Iran’s annual average crude oil production is forecast at 3.1 million bpd in 2016 (10% of projected total OPEC production), and nearly 3.6 million bpd in 2017.
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“However, if Iran can move quickly to offer its oil under attractive terms there may be more “pricing in” to come”, meaning lower oil prices.
