IEA warns of "enormous strain" on oil market in 2016

Jessica Morris
Follow Jessica
California Oil is Source of Wealth and Fear
Brent fell below $28 per barrel yesterday (Source: Getty)

The International Energy Agency (IEA) said that warm winter weather and rising supply mean that the world will continue to drown in oil until at least late 2016.

"We conclude that the oil market faces the prospect of a third successive year when supply will exceed demand by one million bpd and there will be enormous strain on the ability of the oil system to absorb it efficiently," the IEA said in its first monthly report of the year.

Unseasonably warm weather worldwide cut global oil demand growth to a one-year low fo one million barrels per day (bpd) in the fourth quarter of last year, down from a near five-year high of 2.1 million bpd in the third quarter.

It left its estimate for global oil demand unchanged from the previously monthly report at 1.2m bpd.

Oil prices have plunged over the last 18 months due to the growing gap between supply and demand. Producers inside and outside of Opec continue to pump out more oil at a time when global demand is waning.

Iran's return to the oil market, following the removal of Western sanctions, helped Brent touch its lowest level since 2003 yesterday. While Iran expects to raise output by 500,000 bpd, the IEA predicts a more modest increase of 300,000 bpd.

The IEA also kept its forecast for a decline of around 600,000 bpd in non-Opec output, which it said had been surprisingly resilient in the face of tumbling crude oil prices.

Related articles