IEA expects oil glut to persist through 2020

International Energy Agency (IEA), a key watchdog of global energy market forecasts oil glut to persists through 2020, much further than originally anticipated.

• According to the agency, oil market will remain oversupplied due to push for cleaner energy reducing demand for hydrocarbon fuels and production efficiency in response to lower oil price.

• On the demand side, according to IEA, demand will rise only by 1% per year till 2020, much slower than to rein on lower oil price. IEA expects oil demand to grow only by 5% over next 20 years and demand not to hit 103.4 million barrels/year until 2040, from current 94.5 million barrels/year.

• According to the agency, last commodity glut including oil was supported by rise of China, which is now moving away from dirtier fuels in response to wide spread pollution and smog problem. According to Faith Birol, executive director at IEA, world is approaching end of single largest demand growth story in history.

• IEA expects oil to stay below $80/barrel until 2020.

Contrary to IEA estimate, some analysts, including key Saudi officials suggested price to rebound much faster as production growth drops outside OPEC cartel and lack of investments in the sector increases possibility of future price shocks.

Brent is currently trading at $47.2/barrel, with a premium of $3.2/barrel over WTI.