According to the International Energy Agency, the world’s oil market will be close to balanced next year in the face of demand that continues to rise faster than production. It also suggests that the current glut in supply is much smaller than originally thought.
The Paris-based agency said that the surplus in the first six months of the year is about 40% smaller than estimates made a month ago suggested. as consumption proves stronger than expected while disruptions reduce supply, the Paris-based agency said. Despite its optimism, the agency said that upside to prices will likely be limited by what it described as the “enormous inventory overhang” that accrued over the years of oversupply.
“At halfway in 2016 the oil market looks to be balancing,” said the agency, which provides counsel to 29 nations on energy policy. “Less oil has been stockpiled than we originally expected” as “oil demand growth has been significantly stronger” and “unexpected supply cuts” pressurized the availability of crude.
“The 80% rally in oil prices since the 13-year lows plumbed in January has been quite remarkable. While some of the rally may have been attributable to investment cuts, wildfires affecting Canadian oil tar operations and regular militant attacks on Nigerian installations, we think the nascent will among OPEC and non-OPEC producers to consider capping production has played a role too,” said Floyd Paché, chief economist at Shinsei Corporate Management.
“We see oil prices closing out 2016 at around $65 a barrel but around $5 - $8 of that will be down to dollar weakness amid the Federal Reserve’s inability to raise interest rates further in 2016,” concluded Paché.

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