The world could 'drown' in oil

The world might “drown” in oil this year.

In its latest oil market report, the International Energy Agency said that adding Iran’s expected oil production of about 600,000 barrels per day to the market’s current output could cause the world to “drown” in oil in 2016.

And this could send the already depressed price of oil even lower.

“Although we do not formally forecast OPEC oil production, in a scenario whereby Iran adds 600,000 [barrels per day] to the market by mid-year and other members maintain current output, global oil supply could exceed demand by 1.5 million b/d in the first half of 2016,” the IEA wrote in a report published Tuesday.

“While the pace of stock building eases in the second half of the year as supply from non-OPEC producers falls, unless something changes, the oil market could drown in over-supply. So the answer to our question is an emphatic yes. It could go lower.”

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 around $100 a barrel at the beginning to 2014 to under $30 a barrel today.

But now with economic sanctions against Iran officially being lifted this past weekend there will be even more supply for the market to try to sop up, even if this influx of supply was expected.

Additionally, the IEA says it increasingly looks like oil market demand will decline in 2016, leaving markets even more stretched.

On Monday night we learned that China’s economy grew at a 6.8% clip in the fourth quarter of 2015, the slowest pace in over two decades. The IMF also cut its outlook for global economic growth on Tuesday, the third time in less than a year that the Fund has downgraded its expectations for the world economy.

The IEA also noted in its report that with once-fast-growing economies like Brazil facing a deep recession and the US dollar’s strength continuing to erode the purchasing power of many oil importers, prospects for increased global oil demand in 2016 aren’t particularly bright.

Read the IEA’s report here »

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