The IEA said Iran could add around 300,000 barrels a day of additional crude by the end of the first quarter, and that the return of Iranian crude to the global market will inevitably and largely offset the 600,000 barrels a day drop that is expected in supplies from producers outside OPEC.
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The IEA notes that 2016 is set to be the third straight year in which oil-market supply exceeds demand, a dynamic that brought prices from about $100 a barrel at the beginning to 2014 to under $30 a barrel today.
WTI for February delivery, which expires Wednesday, slipped 96 cents to close at $28.46 a barrel on the New York Mercantile Exchange.
At its peak, in the second quarter of 2011, Iran was exporting more than 2.7 mb/d globally, about one quarter of which went to European Union countries.
Oil sank to a 12-year low of less than $US28 a barrel in London on Monday as the removal of global sanctions over the weekend freed Iran to revive crude exports, threatening to swell a glut created by fellow OPEC members and U.S. shale drillers.
“The New Year has been awash with pessimism about economic growth”, the IEA says, citing the World Bank’s early-January report saying last year’s global economic growth was the slowest since 2001.
Drastic cuts to fuel subsidies in Saudi Arabia will cut growth in demand by half in the kingdom, while economic turmoil in China and Brazil will also result in weaker demand for oil.
Barclays analysts Alia Moubayed and Michael Cohen wrote in a research note to investors that the anticipated ramp-up in Iranian production comes “at a very bad time” for the oil market given the existing pressure on prices.
SEB Markets assumes Iranian oil output will rise by 400,000 bpd to 3.2 million bpd in 2016, while Tehran has said it will add 1 million bpd to its existing output by the year-end. “Non-OPEC marginal barrel production in the next six months will be sensitive to sustained low oil prices”.
For now, OPEC said it pumped less oil in December, reducing the excess in the market.
On the other side of the global oil equation is growing supply.
Indeed, Chinese President Xi Jinping is right now visiting the Middle East. China is the world’s top net oil importer.
Production outside OPEC will drop by 660,000 barrels a day this year, the group said Monday in its monthly market report, deepening the decline from its previous estimate by 270,000 barrels a day.
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Overall, Opec production is now 1.06m barrels a day higher than at the same time last year, at a seven year high of 32m barrels a day.
