Can Oil Go Lower? ‘An Emphatic Yes’, Says IEA

The International Energy Agency warned on Tuesday that a further drop in oil prices is likely as supply continues to exceed demand, placing “enormous strain” on the ability of the oil system to absorb it efficiently.

Brent crude futures have fallen to a 13-year low, trading below $29 a barrel and U.S. crude futures are also hovering around $29 a barrel. Standard Chartered has said prices could go as low as $10 a barrel while Goldman Sachs has said it could fall to $20.

At its half-yearly policy meeting in December, OPEC decided not to lower its 30 million-barrel-day production quota, as kingpin Saudi Arabia stuck to its strategy of maintaining output in order to push prices down, squeezing out smaller energy players with higher production costs.

Prices, already on a sharply downward trajectory, fell further on Monday after sanctions against oil producer and OPEC member Iran were lifted. The decision raises the prospect of yet more supply as the country ramps up production.

“There are considerable uncertainties around the quality and quantity of oil that Iran can offer to the market in the short term, ” the IEA noted. While the country may be able to sell oil from storage, questions surround its ageing energy infrastructure.

Nonetheless, a fall in non-OPEC production will be offset by higher production from Iran, while other Middle East producers are also likely to continue production to protect their share of the market, the IEA said.

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Craig Erlam
Based in London, England, Craig Erlam joined OANDA in 2015 as a Market Analyst. With more than five years' experience as a financial market analyst and trader, he focuses on both fundamental and technical analysis while conducting macroeconomic commentary. He has been published by The Financial Times, Reuters, the BBC and The Telegraph, and he also appears regularly as a guest commentator on Bloomberg TV, CNBC, FOX Business and BNN. Craig holds a full membership to the Society of Technical Analysts and he is recognized as a Certified Financial Technician by the International Federation of Technical Analysts.