The IEA

As science, technologies, markets, policies, and costs evolve each year, we take those changes into account in our analysis. We will do so again as we prepare for next year's edition of the World Energy Outlook.

Oil continues to dominate road transport demand, despite an increase in consumption of biofuels, electrification of mobility, with the partial exception of two and three wheelers, makes only limited inroads. This pathway suggests little change in Southeast Asia from today's congested roads and poor urban air quality.

However, there have been clear and, in the IEA's view, very welcome signals from other producers that they will step in to replace Iran's barrels, albeit gradually in response to requests from customers, there is certainly scope for other producers to step up production.

Rising production from Middle East Gulf countries and Russia, welcome though it is, comes at the expense of the world's spare capacity cushion, which might be stretched to the limit, this vulnerability currently underpins oil prices and seems likely to continue doing so.

Although market balance is upon us, the existence of very high oil stocks is a threat to the recent stability of oil prices, although stocks are close to topping out, they are at such elevated levels, especially for products for which demand growth is slackening, that they remain a major dampener on oil prices.

As such, the Middle East’s market share of global oil supplies rose to 35 percent, the highest since the late 1970s and an eloquent reminder that even when U.S. shale production does resume its growth, older producers will remain essential for oil markets.

Any changes to our current 2016 global demand outlook are now more likely to be upwards than downwards, as gasoline demand grows strongly in nearly every key market, more than offsetting weakness in middle distillates, slower demand growth in OECD (Organisation for Economic Co-operation and Development) countries is not unexpected; it represents a return to the norm.

If there is to be a production freeze, rather than a cut, the impact on physical oil supplies will be limited, with Saudi Arabia and Russia already producing at or near record rates and very little upside seen apart from Iran any deal struck will not materially impact the global supply-demand balance during the first half of 2016.

India could be replacing China as the main engine of global demand growth, reforms to the rules allowing refiners to directly import crude oil are all part of a general trend towards liberalisation that should underpin India's growth momentum.

There are clear signs that market forces ... are working their magic and higher-cost producers are cutting output.

Meanwhile, Iran’s return to the market has been less dramatic than the Iranians said it would be; in February we believe that production increased by 220,000 bpd and, provisionally, it appears that Iran’s return will be gradual.

For prices there may be light at the end of what has been a long, dark tunnel, but we cannot be precisely sure when in 2017 the oil market will achieve the much-desired balance. It is clear that the current direction of travel is the correct one, although with a long way to go.

Although we do not formally forecast OPEC oil production, in a scenario whereby Iran adds 600,000 bpd to the market by mid-year and other members maintain current output, global oil supply could exceed demand by 1.5 million bpd in the first half of 2016, while the pace of stock-building eases in the second half of the year as supply from non-OPEC producers falls, unless something changes, the oil market could drown in over-supply. So the answer to our question is an emphatic yes. It could go lower.

We conclude that the oil market faces the prospect of a third successive year when supply will exceed demand by 1 million bpd and there will be enormous strain on the ability of the oil system to absorb it efficiently.

The continuous pressure from shale gas in the United States, stronger climate policies, and especially, the overcapacity and slowdown in China all contribute to the oversupply. This glut will be even more acute if a peak coal demand in China becomes real.

For this reason, producers are likely to grow still more competitive on pricing, sour crude markets appear especially oversupplied with discounts versus sweet grades widening. Europe is awash with competing sour crudes from the FSU (former Soviet Union) and Middle East and U.S. sour crudes remained depressed by refinery maintenance.

This surplus crude provides some relief, with OPEC's spare production buffer stretched thin as Saudi Arabia - which holds the lion's share of excess capacity - and its Gulf neighbours pump at near record rates, the shock absorber provided by oil stocks is no longer restricted to just crude. As refineries ran flat out to meet soaring demand for gasoline in top consumers the United States and China, distillate inventories ballooned as a consequence.

Stockpiles of oil at a record 3 billion barrels are providing world markets with a degree of comfort.

This massive cushion has inflated even as the global oil market adjusts to $50 per barrel. Demand growth has risen to a five-year high of nearly 2 million bpd... But gains in demand have been outpaced by vigorous production from OPEC and resilient non-OPEC supply - with Russian output at a post-Soviet record and likely to remain robust in 2016 as well.

But the current forecast is for a mild winter in Europe and the U.S. If it turns out to be true, bulging stock levels will add further pressure and oil market bears may choose not to hibernate.