Oil demand seen rising, but Iran calls for cut

Demand for oil will be higher this year than previously thought, according to new forecasts from the International Energy Agency (IEA), released Wednesday.

The IEA's expectation for a "notable acceleration" in demand for oil in 2015 comes as Iran called on fellow Organisation of Petroleum Exporting Countries (OPEC) members to cut production.

View of Iran's oil industry installations in Mahshahr, Khuzestan province, southern Iran.
Kaveh Kazemi | Getty Images
View of Iran's oil industry installations in Mahshahr, Khuzestan province, southern Iran.

Oil is currently trading at around half of last June's price, making it harder for countries and companies which produce the commodity to make a profit.

Despite the low price, some producers have continued to ramp up supply, with Saudi Arabia – OPEC's biggest oil exporter – betting that lower prices will make more-expensive U.S. shale gas production less economically viable.

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Some of the smaller Middle Eastern producers are feeling the impact of low prices, however.

Iranian Oil Minister Bijan Zanganeh called on OPEC to cut production quotas by "at least 5 percent" on Tuesday, according to the country's Oil Ministry website.

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It comes after major global powers agreed a framework deal with Iran over its nuclear program, leading to fears of further oversupply in the oil market if sanctions on Iran are lifted.

Given this uncertainty, the IEA warned that it could be some time before the oil price recovers.

"Advances in talks on Tehran's nuclear program not only call into question past working assumptions on future Iranian output, but may already have encouraged other producers to hike supply and stake out market share ahead of Iran's potential return," the agency said in its report.

"All in all, that suggests the market rebalancing may still be in its early stage."

Demand to rise

A colder-than-forecast first quarter and a "steadily improving global economic backdrop" should see global demand rise, however, according to the IEA. It expects demand to hit 93.6 million barrels a day in 2015, -- up by 90 kilobarrels a day on its earlier forecast.

Yet supply still rose – by around 1 million barrels a day in March, to 95.2 barrels a day – with OPEC production recording its highest monthly hike in close to four years, the IEA said.

"Months into the process of market rebalancing from the oil price collapse, one might be hoping for more clarity on supply and demand impacts. Yet, in some ways, the outlook is only getting murkier," the agency said in a release.