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Published: Thu, July 14, 2016
Economy | By Melissa Porter

IEA: Huge stocks overhang threatens oil price recovery


Crude futures fell on Wednesday as investors took gains after oil prices surged almost 5 percent in the previous session, partly on the back of a forecast increase in demand next year.

Oil fell on Wednesday after the International Energy Agency (IEA) warned that a global supply glut threatened a price recovery and data showed an unexpected weekly gain in USA crude stocks.

That data strengthened fears that the glut of crude oil that sent prices plunging in 2014 and 2015 has turned into a glut of refined fuels.

Global benchmark Brent oil was down 74 cents at $47.73 a barrel at 1139 GMT after settling up $2.22, or 4.8 percent, in the previous session.

Analysts expectations had been for a 3-million-barrel draw, so when the API reported a 2.2-million-barrel move in the opposite direction, the markets responded, sending crude oil prices downward again.

In Tuesday's early trade, oil was supported by producer group OPEC's optimism that the market was likely to achieve balance in supply-demand by next year.

"In the Reference case, relatively low prices through 2017 have the greatest effect on tight oil production, which drops to 4.2 million b/d in 2017 before increasing to 7.1 million bpd in 2040".

Global demand growth is expected to be around 1.2 million barrels a day, broadly unchanged from the previous report to average 94.2 million barrels a day, thanks to major guzzlers in emerging markets, OPEC said.

"The market's gotten really short over the past two weeks with everyone focused on weaker fundamentals and now you're seeing sudden covering", said Scott Shelton, energy futures broker with ICAP in Durham, North Carolina. The rate of decline in non-OPEC supply will slow next year, the Organization of Petroleum Exporting Countries said in a report.

"Lower oil prices and sliding production are a double whammy for Venezuela, which is caught in the grip of an economic and political crisis", the IEA, which advises industrialized nations on energy policies, said in a monthly report.

But Africa's biggest economy is making a comeback, having added nearly 100,000 barrels a day to its daily output last month.

Analysts of the US JP Morgan forecast that the average price for Brent will amount to $45.3 per barrel in 2016 and $55 per barrel in 2017. It expects demand for its crude in 2017 to average 32.98 million bpd, suggesting a supply deficit if OPEC keeps output steady.

Reuters quoted Al Falih during an interview with German media as saying that there "are still excess stocks on the market - hundreds of millions of barrels of surplus oil".

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