Oil prices fell by 3.5 per cent Monday as exceptionally mild temperatures in the early part of the winter in Japan, Europe and the United States – alongside weak economic sentiment in China, Brazil, Russia and other commodity-dependent economies, continue to affect demand.
Brent crude, the global benchmark, was down by $1.13, or 3.5 per cent, at $31.04 a barrel, losing more than two per cent from its closing price on Friday, when Brent surged by10 per cent.
The announcement by Iraq of excessive production record, which was pushed into the already saturated crude oil market, also hit hard on prices.
The International Energy Administration (IEA) has projected a global oil demand growth flip from a near five-year high in the third quarter of last year, at 2.1 million barrels per day (mbpd), to a one-year low in the fourth quarter of 1.0 mbpd.
According to the IEA January report, persistent oversupply, bloated inventories and a slew of negative economic news pressured prices so that by mid-January crude oil touched 12-year lows. The OMR outlook for 2016 has demand growth moderating to 1.2 mbpd.
It added that global oil supplies expanded by 2.6 mbpd last year, following hefty gains of 2.4 mbpd in 2014. “By last December, however, growth had eased to 0.6 mbpd, with lower non-OPEC production that pegged below year-earlier levels for the first time since September 2012”, it noted.
IEA said that OPEC crude output eased by 90,000 barrels per day (90 kbpd) in December to a still-lofty 32.28 mbpd, including newly rejoined Indonesia.
“Iran, now relieved of sanctions, insists it will boost output by an immediate 500 kbpd. Our assessment is that around 300 kbpd of additional crude could be flowing to world markets by the end of the current quarter.
“Global inventories rose by a notional one billion barrels in 2014-15, with the fundamentals suggesting a further build of 285 mb over the course of this year.
Despite significant capacity expansions in 2016, this stock build will put storage infrastructure under pressure and could see floating storage become profitable.
“Global refinery runs averaged 79.5 mbpd in the fourth quarter of 2015, down 0.3 mbpd from the estimate in last month’s OMR due to lower-than-expected throughputs in non-OECD Asia except China and a very high maintenance schedule in October.
Global refinery margins weakened in December as middle distillate cracks fell and overwhelmed the resilience of gasoline and naphtha”.
Dwelling on the declining crude oil prices, IEA expects the oil market to face the prospect of a third successive year, when supply will exceed demand by 1.0 mbpd and there will be enormous strain on the ability of the oil system to absorb it efficiently.
Meanwhile, data from the InterContinental Exchange showed speculators had raised their net long position in Brent crude during the week to Jan. 19.
In the United States, one of OPEC’s largest production rivals, a further drop in the number of oil rigs was expected to weigh on output.
U.S. investment bank Goldman Sachs said it expected production to decline by 95,000 barrels per day in 2016, including well deferrals, higher than previously assumed.
Analysts at Energy Aspects said global oil inventories would continue to fill in the next months, but should start to ease by mid-year.
OPEC’s Secretary-General Abdullah al-Badri said at an event in London that signs were already emerging that the market was re-balancing.
He also said OPEC and non-OPEC producers needed to work together to tackle over supply in order to prop up oil prices.