London - The planet's “mega glut” of oil is showing no signs of drying up, meaning that the global price of energy is set to remain depressed well into next year, the International Energy Agency said yesterday.
In its latest monthly report, the IEA, which represents the oil-consuming nations, reported that global stockpiles of oil in rich countries were at a record 3 billion barrels. “This massive cushion has inflated even as the global oil market adjusts to $50 per barrel,” said the IEA.
The price of a barrel of oil has more than halved over the past 18 months thanks to the glut of supply and a slowdown in world demand for energy. The price of a barrel of Brent crude for delivery in December sank 0.7 percent to $43.80 yesterday in response to the report. In the summer of 2014, a barrel was trading at more than $100.
“The realisation of a mega-glut is finally registering within the market,” John Kilduff, analyst and partner with Again Capital, said. “I think we're probably in the midst of another leg lower here [in price].”
The IEA also said global oil supplies topped 97 million barrels per day in October, up 2 million from a year earlier, as output from producers outside the Opec cartel bounced back.
The Paris-based organisation reported that demand has risen to a five-year high of nearly 2 million barrels a day but that this had been outpaced by vigorous production from Opec and resilient non-Opec supply. The IEA said Russian output had hit a new post-Soviet era record.
Output from Opec countries was steady at 31.8 million barrels a day. Ministers from the cartel are due to meet next month in Vienna but are thought highly unlikely to shift from their existing strategy of maintaining supply in order to defend their market share.
The IEA does expect US shale oil producers to be forced to slash output in 2016 as the cost of producing the energy becomes uneconomical at these depressed market prices. But it does not expect this to erode the glut for some time, meaning downward pressure on oil prices will continue.
Earlier this week the US Energy Information Administration reported that American crude inventories rose by 4.2 million barrels, well outstripping analysts' expectations - and boosting stockpiles to levels not seen at this time of year for 80 years. It said that global oil demand will likely slow to 1.2 million barrels a day in 2016, down from the 1.8 million barrels a day hit this year. The report means oil is likely to maintain the downward pressure on consumer price inflation in Western economies, making it less likely that central bankers will lift interest rates soon.
The United States Federal Reserve is expected to lift rates finally from their post-crisis historic lows next month, but the Bank of England has signalled that rates could remain at rock bottom for another year. Meanwhile, the European Central Bank has signalled that it will seek ways to loosen policy further in order to lift core inflation.
In its annual World Energy Outlook released earlier this week the IEA forecast that a sluggish recovery in demand and a fall in supply would produce an energy price of $80 a barrel by 2020. But the IEA also offered an alternative scenario in which oil stays in the $50-$60 range over the next decade.
The IEA said if the winter is mild, as currently forecast, the stockpile of oil could force the price even lower in the coming months. “Oil market bears may choose not to hibernate” it said.
THE INDEPENDENT