IEA says worst may be over for oil price

Saturday, Mar 12, 2016,11:32 IST By metrovaartha A A A

Paris | The oil price may have finally bottomed out after an unprecedented drop over the past 18 months, the International Energy Agency (IEA) said Friday, noting oil’s remarkable recovery over recent weeks.

Recent sharp gains in the oil price, taking it to around USD 40 per barrel now from USD 28.50 in mid-January, do not necessarily mean that the worst is over, the IEA said in its monthly oil market report. Even so, there are signs that prices might have bottomed out, it said.

Oil had seen a dramatic fall since trading above USD 110 in mid-2014 to lows seen in January of this year, before staging a modest recovery to current levels. But there is a long way to go before supply and demand find a real balance, probably in 2017, the IEA said. For prices there may be light at the end of what has been a long, dark tunnel, but we cannot be precisely sure when in 2017 the oil market will achieve the much-desired balance, it said. Among factors for higher prices are talks among producers launched by Saudi Arabia, Venezuela, Qatar and Russia to freeze production which the IEA said amounts to a first stab at co-ordinated action that is intended to stabilise prices with the presumed aim of pushing oil up to USD 50 a barrel. The outcome of negotiations is, however, uncertain and a big supply overhang in the oil market means it would have little impact in the months ahead. Later this month some oil producers are expected to meet to discuss a possible output freeze. We cannot know what this might be and in any event it is rather unlikely that an agreement will affect the supply/demand balance substantially in the first half of 2016, the report said.

Among other factors keeping a lid on oil supply, Iran’s return to the market following the lifting of Western sanctions in January has been less dramatic than the Iranians said it would be, the IEA said. Provisionally, it appears that Iran’s return will be gradual, said the 29-nation agency that provides analysis on global energy markets. The IEA said supply disruptions in Iraq, Nigeria and the United Arab Emirates, steady demand for oil and recent weakness of the dollar were other reasons supporting expectations of a price upturn. Also, there are signs that high-cost producers, including of US shale oil, are lowering output as they can’t cover their costs because of oil price weakness.