IEA expects oil oversupply to continue with Iran re-entry

Oil markets will face oversupply of at least one million barrels a day for the third year in a row, according to a report by energy forecaster the IEA.

The market could “drown in oversupply” this year, according to the organisation, as rising Iranian output offsets productions cuts in other markets.

The IEA’s January market report concluded that falling production outside OPEC would be met by oversupply and Iran’s re-entry into the international market.

Non-OPEC supply could drop 600,000 barrels a day in 2016, it said, following a 1.3 million barrel increase last year.

The IEA warned of prices possibly lurching lower should Iran spark a price war with Saudi Arabia by offering its oil under attractive terms.

“Saudi Arabia and others are going to ensure they don’t lose out,” said IEA oil mark division head Neil Atkinson. “They are not going to give up the fight and say ‘welcome back’. For all intents and purposes, this is a free market.”

Oil sunk to 12-year lows this week, briefly dropping below $28 a barrel before rebounding today to over $30.

The IEA forecasts an increase of 285 million barrels to global oil stocks in 2016 following a one billion barrel increase in 2015.

Iran has said it will boost its output by 500,000 barrels a day, with forecasts suggesting 300,000 barrels could hit the market by March.