The oil glut is set to stay. Soft markets would continue into 2016 too - despite the seesaw registered over the last couple of weeks - consensus seems emerging. Only last Thursday, the US Energy Information Administration reported growth in domestic crude inventories by 7.6 million barrels. This was the highest increase in six months. The EIA data underlined that US oil supplies are holding near levels not seen for this time of year in at least the last 80 years. A bearish cue indeed for the markets. However, at the same time, the EIA reported a fall in oil product stocks and total US crude oil production. US oil output that peaked in April at 9.6 million bpd has now fallen by 760,000 bpd to 9.1 million bpd. Markets took this as a sign that the oil glut might abate - sooner - rather than later - causing a somewhat recovery of oil markets - as the weekend approached. Yet the overall scenario remains grim. The recent Oil Report of the Paris-based International Energy Agency (IEA) is also now saying that global oil markets will remain oversupplied in 2016. It cites the slowing global demand growth and the possibility of a surge in Iranian crude exports following the anticipated lifting of sanctions. While the negative impact of the low crude prices on the US shale output is now evident, the non-OPEC supplies are definite to take a hit. Total non-OPEC supply is set to go down by 500,000 bpd, which the IEA said last month was the steepest drop since 1992. US oil output will fall to 12.56 million barrels a day in 2016, from 12.75 million this year, the IEA report pointed out. Yet, factors balancing it out seem in strength at the moment. With global economic prospects weakening, and the IMF underlining that the global economy would grow this year at its slowest pace since the global financial crisis, the crude demand growth is also now expected to ease out from this year's five-year high, allowing the crude surplus to endure, the IEA is now predicting in the report. Global demand growth is also set to get lower to 1.2 million bpd in 2016, down from 1.8 million bpd this year, amid the softer global economic outlook. Consumption worldwide is thus to average 95.7 million bpd next year, about 100,000 bpd a day less than projected in IEA's last month's report. And the very possibility of Iran returning to the oil markets with its full strength once the sanctions are lifted is set to contribute, and rather immensely, to the continuity of the glut like scenario in the markets. As per the IEA forecast, Iran could boost output to 3.6 million bpd from its current 2.9 million. This could be achieved over the next six months and would almost double the increase in oil inventories projected for the next year. On the other hand the growing output from Iraq is also impacting the markets. Iraq that has already replaced the US as the biggest source of new supplies is also on the IEA radar. Baghdad raised output by 130,000 bpd to 4.3 million bpd, the IEA report estimated. Overall, output from OPEC's 12 members thus went up by 90,000 bpd to 31.72 million in September, the highest since July. This was despite the fact that output from Saudi Arabia, was slightly lower than August at 10.2 million bpd. Oil inventories in developed nations too expanded in August by double the normal amount, leaving them 204 million barrels above the seasonal average. Hence despite hints that global output will ultimately falter and crude markets would firm up, global markets continue to remain oversupplied. This is the reality of the day. IEA hence says: "The market may be off balance for a while longer." Commenting further, it underlines that "a projected, marked, slowdown in demand growth next year and the anticipated arrival of additional Iranian barrels - should international sanctions be eased - are likely to keep the market oversupplied through 2016." "The demand outlook for 2016 looks markedly softer" because of "downgrades to the macroeconomic outlook and expectations that crude oil prices will not repeat the heavy declines seen in 2015," the IEA said in its Monthly Oil Report. OPEC too is reporting of elevated output levels. Last month, OPEC produced 31.57 million bpd - the highest reported level since April 2012. This was up by about 109,000 bpd from August too. The OPEC also expected the US production to fall on an annual basis next year for the first time in eight years, increasing demand for OPEC crude to 30.8 million barrels a day. And although markets seemed to have taken, rather positively, the ongoing discussion between Russia and OPEC, yet the possibility of any coordination between the two remains remote - to say the least. In a recent note to clients, Helima Croft, the global head of commodity strategy at RBC Capital Markets, too feels it as unlikely. "The escalated conflict could ... make it more difficult for Russian and OPEC officials to reach any agreement on a coordinated production cut in the near future," writes Croft. And she has a point! A recovery in the global oil and gas industry has been delayed, Schlumberger chief executive officer is now warning too. Paal Kibsgaard, chief executive and chairman, said the outlook for the industry was "increasingly challenging" as a result of the fall in oil prices since last year, adding that the business environment in the third quarter had continued to deteriorate. Some though continue to be optimist. The gap in oil supply and demand is due to close in the third quarter of 2016, Mohammad Ghazi Al-Mutairi, chief executive officer of state-run Kuwait National Petroleum Co., at a Kuwait conference last week. Prices have bottomed and there are signs of a recovery in 2016, insists Qatar's Energy Minister Mohammed Al Sada. But when in 2016? A consensus is still to emerge. For the time at least - the wait is on.
