Oil prices rose on Tuesday, clawing back some of the losses from a sell-off across broader financial markets, but a report showing supply will not drop quickly enough to erode a global surplus tempered gains.
The world will store unwanted oil for most of 2016 as declines in U.S. output take time and OPEC is unlikely to cut a deal with other producers to reduce ballooning output, the International Energy Agency said.
The agency cut its forecast for 2016 oil demand growth, which now stands at 1.17 million barrels per day (bpd) following a five-year high of 1.6 million in 2015, and reduced its estimate of demand for OPEC crude.
“The key issue in the market is the point in time at which supply and demand balance once more, and what we’re seeing here is the IEA are suggesting that will be pushed further into the future,” BNP Paribas strategist Gareth Lewis-Davies said.
“The period where you have to erode the overhang, once markets start to draw (down) is going to be longer, so it feeds into the narrative of a low oil-price environment for longer than they had been anticipating.”
Brent crude futures LCOc1 were last up 37 cents at $33.25 a barrel by 6.52 a.m. ET, down from Monday’s session high of $34.68. U.S. futures CLc1 were up 54 cents at $30.21.
Financial markets have been rattled in the last week by concern about banks given signs of a potential global slowdown, prompting buying of perceived safe-haven assets such as gold XAU=, German Bunds DE10YT=TWEB and the Swiss franc CHF=.
Oil, which had gained nearly 30 percent in the two weeks to early February, breaking above $35, has receded, in line with a retreat in stocks and industrial commodities.
Echoing the view of the IEA, a Reuters survey showed U.S. crude stocks likely rose by 3.9 million barrels in the week ended on Feb. 5, meaning global oversupply is unlikely to abate any time soon.
“The fundamentals haven’t shifted. The market remains in surplus, and while that’s the case, it is very difficult for prices to sustain any gains,” said Michael McCarthy, chief market strategist at CMC Markets in Sydney.
There is also little sign of any coordination on production cuts among big producers outside the United States after weekend talks between OPEC members Saudi Arabia and Venezuela yielded no concrete result.