IEA says oil glut remains a major dampener on prices

The global glut in oil is refusing to ease and acts as a major dampener on crude prices despite robust demand growth and steep declines in non-OPEC production, the International Energy Agency said on Wednesday.

The IEA, which coordinates the energy policies of industrial nations, said it had revised up its forecasts of 2016 and 2017 global oil demand growth by 0.1 million barrels per day from last month to 1.4 million and 1.3 million bpd respectively.

It said demand was growing thanks to good consumption in India, China and, surprisingly, Europe.

“This (European demand growth) is unlikely to last, though, with the ongoing precariousness of the European economies now dealing with added uncertainty following the result of the UK referendum on membership of the European Union,” it added.

Oil prices slumped to their lowest in over a decade at $27 a barrel earlier this year from as high as $115 in 2014 after OPEC raised production to fight for market share against higher-cost producers such as the United States.

The slump forced many producers outside the Organization of the Petroleum Exporting Countries to curb output and prices recovered to around $50 in recent months, also supported by production outages in countries such as Nigeria and Canada.

But it was not enough to reduce the glut that had accumulated over the past two years. Commercial inventories in industrialised nations rose by 13.5 million barrels in May to a record high of 3.074 billion, the Paris-based IEA said.

Inventories kept building in June, pushing oil in floating storage – one of the most expensive methods of storing oil – to its highest levels since 2009, the IEA said.