IEA sees oil supply glut to cap price rise
Print Edition
A huge overhang in oil stocks lingering across the world will keep a cap on any further oil price rises, the IEA said yesterday, even as supply and demand move toward balance by the end of the year.
Global demand for oil is steadily rising thanks to solid economic growth, and supply has been curbed by unexpected production cuts due to wildfires in Canada and rebel attacks in Nigeria, as well as falling US shale production, the International Energy Agency said in its monthly oil market report.
These factors recently pushed the oil price above the key US$50 as supply came closer to matching demand, a process known as rebalancing which the IEA expects to be fully in place in the second half of this year.
But while market forces play out to help the oil price to continue climbing from its low point of close to US$25 at the start of the year, there are still large oil inventories waiting to feed into the market, causing a supply glut that is likely to keep a lid on gains for some time.
“There is an enormous inventory overhang to clear,” the IEA said. “This is likely to dampen prospects of a significant increase in oil prices.”
Worries about big stocks have caused the oil price to fall back from this year’s high of around US$51 reached early last month, the agency said, echoing Monday’s report from the OPEC oil cartel which said “speculators became somewhat less interested in long positions” because of the overhang in inventories.
“Oil prices are due a short-term breather given the recent run-up, as the market takes stock of broader macroeconomic developments,” analysts at Energy Aspects said.
The IEA said there is a “huge number of moving parts” in the current oil market environment, making accurate predictions hazardous.
On the supply side, these involve a strong return of Iran to the oil market after Western countries lifted sanctions.
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