• 2 days Iraq Begins To Rebuild Largest Refinery
  • 2 days Canadian Producers Struggle To Find Transport Oil Cargo
  • 2 days Venezuela’s PDVSA Makes $539M Interest Payments On Bonds
  • 2 days China's CNPC Considers Taking Over South Pars Gas Field
  • 2 days BP To Invest $200 Million In Solar
  • 2 days Tesla Opens New Showroom In NYC
  • 2 days Petrobras CEO Hints At New Partner In Oil-Rich Campos Basin
  • 3 days Venezuela Sells Oil Refinery Stake To Cuba
  • 3 days Tesla Is “Headed For A Brick Wall”
  • 3 days Norwegian Pension Fund Set to Divest From Oil Sands and Coal Ventures
  • 3 days IEA: “2018 Might Not Be Quite So Happy For OPEC Producers”
  • 3 days Goldman Bullish On Oil Markets
  • 3 days OPEC Member Nigeria To Issue Africa’s First Sovereign Green Bond
  • 3 days Nigeria To Spend $1B Of Oil Money Fighting Boko Haram
  • 3 days Syria Aims To Begin Offshore Gas Exploration In 2019
  • 3 days Australian Watchdog Blocks BP Fuel Station Acquisition
  • 4 days Colombia Boosts Oil & Gas Investment
  • 4 days Environmentalists Rev Up Anti-Keystone XL Angst Amongst Landowners
  • 4 days Venezuelan Default Swap Bonds At 19.25 Cents On The Dollar
  • 4 days Aramco On The Hunt For IPO Global Coordinators
  • 4 days ADNOC Distribution Jumps 16% At Market Debut In UAE
  • 4 days India Feels the Pinch As Oil Prices Rise
  • 4 days Aramco Announces $40 Billion Investment Program
  • 5 days Top Insurer Axa To Exit Oil Sands
  • 5 days API Reports Huge Crude Draw
  • 5 days Venezuela “Can’t Even Write A Check For $21.5M Dollars.”
  • 5 days EIA Lowers 2018 Oil Demand Growth Estimates By 40,000 Bpd
  • 5 days Trump Set To Open Atlantic Coast To Oil, Gas Drilling
  • 5 days Norway’s Oil And Gas Investment To Drop For Fourth Consecutive Year
  • 5 days Saudis Plan To Hike Gasoline Prices By 80% In January
  • 5 days Exxon To Start Reporting On Climate Change Effect
  • 6 days US Geological Survey To Reevaluate Bakken Oil Reserves
  • 6 days Brazil Cuts Local Content Requirements to Attract Oil Investors
  • 6 days Forties Pipeline Could Remain Shuttered For Weeks
  • 6 days Desjardins Ends Energy Loan Moratorium
  • 6 days ADNOC Distribution IPO Valuation Could Be Lesson For Aramco
  • 6 days Russia May Turn To Cryptocurrencies For Oil Trade
  • 6 days Iraq-Iran Oil Swap Deal To Run For 1 Year
  • 9 days Venezuelan Crude Exports To U.S. Fall To 15-year Lows
  • 9 days Mexico Blames Brazil For Failing Auction

Breaking News:

Iraq Begins To Rebuild Largest Refinery

Alt Text

Brent Spikes As This Major Pipeline Breaks Down

Brent oil prices spiked on…

Alt Text

Oil Prices Rise On Solid Chinese Demand

Oil prices rose on Friday…

Alt Text

Why Is Canadian Oil So Cheap?

Reduced pipeline capacity and bottlenecks…

Nick Cunningham

Nick Cunningham

Nick Cunningham is a freelance writer on oil and gas, renewable energy, climate change, energy policy and geopolitics. He is based in Pittsburgh, PA.

More Info

IEA: No Oil Price Rally In The Short Term

IEA: No Oil Price Rally In The Short Term

“It is very hard to see how oil prices can rise significantly in the short term.” For oil prices, the “short term risk to the downside has increased.”

Those were the conclusions from the IEA’s February Oil Market Report. On the heels of the plunge in oil prices to $26 per barrel, the IEA sounded a lot more somber since it last issued its monthly assessment.

The Paris-based energy agency ticked through all the key potential drivers that could push up oil prices this year, knocking each one down with a renewed sense of pessimism.

The first potential source of bullishness, and the most tenuous, was the possibility of a production cut from OPEC and a few major non-OPEC countries. The IEA dismissed the rumors as mere “speculation,” saying that the “likelihood of coordinated cuts is very low.” Given the seemingly failed bid by Venezuela’s oil minister to secure a more forceful pledge from Saudi Arabia to push an emergency OPEC meeting over the weekend, the hype over coordinated reductions from some of the world’s top producers seems increasingly remote. Related: Who Would Be The Best Presidential Candidate For Energy Companies?

Even if OPEC decides not to slash output, another hope for the oil markets is the prospect that the cartel will at least fail to increase production. Lower oil prices have cut into the revenues of all OPEC member countries, and in places like Iraq, that could directly affect the country’s ability to continue to ramp up output. It is still too early to tell if things will play out this way, but the latest figures from OPEC do not bode well. Iraq achieved record production in January at 4.35 million barrels per day (mb/d). Iran increased production by 80,000 barrels per day (bpd) and still has room to grow. And although Saudi Arabia probably won’t continue to ratchet up output through 2016, preliminary data suggests that the oil kingdom increased output by 70,000 bpd last month, according to the IEA. As a result, shrinking, or at least flat production from OPEC, is not a given.

So, a supply-side adjustment will come from U.S. shale, right? U.S. shale production has slammed on the breaks after years of blistering growth, and output is down to about 9.2 mb/d, off 400,000 bpd from the April 2015 peak. The EIA sees output falling to 8.7 mb/d this year, shaving off another 500,000 bpd. But the IEA doesn’t see huge cuts coming, reiterating its prediction that total non-OPEC production, which includes the U.S., will fall by only 600,000 bpd this year. “Perhaps resilience still has some way to go,” was how the IEA summed up the situation. Related: IEA: Increasing OPEC Production Keeps Oil Prices Down

The strength of the U.S. dollar was a very large driver of the oil price crash, a factor that was probably underemphasized over the past year. The Federal Reserve’s plans to hike interest rates, along with concerns over the stability of the global economy, has driven up the strength of the dollar. Even if the Fed pulls back from its planned rate hikes, which looks more likely than it did in December when the central bank initiated its first rate increase, the dollar will maintain its strength because of its attractiveness as a safe-haven during times of uncertainty. As a result, the IEA doesn’t foresee a sizable depreciation, removing another driver of bullishness for oil prices.

On the demand side of the equation, the IEA merely reiterated its call for demand to grow by 1.2 mb/d this year, unchanged from previous predictions. That is down substantially from the 1.6 mb/d the world saw in 2015. While that may still be a “very respectable rate,” the IEA doesn’t believe that the cheapest oil in over a decade will spur stronger consumption. Related: Hopes Fall on Emergency OPEC Meeting

What does all of this mean for oil prices? The IEA sees a larger surplus now than it previously anticipated. Excess supply of about 2 mb/d will persist through the first quarter, which will fall to 1.5 mb/d in the second. The glut should shrink to 0.3 mb/d in the second half of the year, but with storage levels still rising, oil prices may not rebound by much.

Separately, Jeffrey Currie, the head of global commodities research at Goldman Sachs, said on February 9 that oil price volatility, already at multiyear highs, will probably increase in 2016 and that he wouldn’t be surprised if oil dipped below $20 per barrel. Goldman has made a name for themselves with their bearish predictions on crude oil – and many of them have largely come to pass.

By Nick Cunningham of Oilprice.com

More Top Reads From Oilprice.com:

Back to homepage

Leave a comment

Leave a comment

Oilprice - The No. 1 Source for Oil & Energy News