PARIS -- The International Energy Agency said Tuesday that oil supply is set to outpace demand this year, keeping a lid on any expected price increases.
The organization, which advises countries on energy policy, said in its monthly report Tuesday that global excess supply may reach 2 million barrels per day during the first quarter, and a further 1.5 million barrels a day in the second quarter. Further stock-building of 300,000 barrels a day is forecast in the second half of the year.
"If these numbers prove to be accurate, and with the market already awash in oil, it is very hard to see how oil prices can rise significantly in the short term," the agency said.
Data in the agency's report "shifted attention back to the global glut," said John Kilduff, a partner at Again Capital LLC, a New York-based hedge fund that focuses on energy. "It dashed any hopes of supply and demand coming into balance anytime soon."
West Texas Intermediate crude for March delivery slipped $1.75 to settle Tuesday at $27.94 a barrel on the New York Mercantile Exchange. The European benchmark, Brent crude, dropped $2.56 to $30.32 a barrel on the London-based ICE Futures Europe exchange.
In its monthly short-term energy outlook, the U.S. Energy Information Administration said Tuesday that regular gasoline will average $1.98 a gallon in the United States in 2016.
If the forecast is right, it will be the first time since 2004 that U.S. drivers have paid a full-year average of under $2 a gallon.
The pump savings are a direct result of the 70 percent collapse in crude oil prices since mid-2014.
The U.S. agency expects benchmark U.S. crude to average $37.59 a barrel this year, down from $48.67 last year. International crude will average $37.52, down from $52.32 a barrel in 2015, according to the agency.
Oil could drop below $20 a barrel as the search for a level that brings supply and demand back into balance makes prices even more volatile, Goldman Sachs Group Inc. predicted.
With capacity to store oil exhausted in some places, prices may need to drop low enough to halt crude output that can no longer be stockpiled, said Jeff Currie, Goldman's head of commodities research.
"Once you breach storage capacity," volatility will surge, Currie said in an interview with Bloomberg Television. He said he "wouldn't be surprised if this market goes into the teens."
The storage sites most likely to run out of space are "landlocked," such as Cushing, Okla., the delivery point for U.S. crude futures, Currie said. Inventories at Cushing reached 64.2 million barrels in the week leading to Jan. 15, the highest in data from the Energy Department that extend back to 2004.
While price swings are set to increase, the oil slump doesn't seem likely to derail the global economy, Currie said.
"The difference today versus other cycles in the past is that we have many risk-sharing arrangements put in place," Currie said. Flexible exchange rates in Russia to liquid markets for high-yield debt in the U.S. are all designed to make the financial system safer, he said.
There's no visible "connection between what's going on in the commodities space and creating system risk," Currie said.
Information for this article was contributed by The Associated Press and by Grant Smith, Jonathan Ferro and Mark Shenk of Bloomberg News.
Business on 02/10/2016