Oil slumps on IEA`s gloomy market outlook

Oil resumed heavy falls on Tuesday, erasing earlier gains in highly volatile trade, after the International Energy Agency issued a gloomy market outlook.

In late afternoon deals in London, Brent North Sea crude for delivery in April dived $2.25 to $30.63 per barrel.

US benchmark West Texas Intermediate for March delivery shed $1.07 to $28.62 a barrel compared with Monday`s close.

Oil had already crashed in January, with New York crude ducking below $28 for the first time since September 2003 on abundant crude supplies and global economic gloom centred on China`s slowdown.

"Oil is falling on continued worries about excessive supply as the odds of an output cut from Russia and OPEC are fading fast," City Index analyst Fawad Razaqzada told AFP on Tuesday.

Prices had tanked Monday after weekend talks between OPEC kingpin Saudi Arabia and fellow cartel member Venezuela dashed hopes for a reduction in world production.

On Tuesday, the market dived once again after the IEA forecast the global oil surplus would be larger than previously expected in the first half of 2016.

"The IEA now envisages that supply may exceed demand by an average of 1.75 million barrels a day in the first half of this year, compared with an estimate of 1.5 million last month," added Razaqzada.

"The IEA, like many other forecasters, think that the excess could grow if output from the OPEC increases further, a probable outcome given that Iran is now in the process of making a full return to oil the market."

The energy watchdog also played down talk of a global output cut, warning that the supply glut would prevent any short-term price rebound.

"With the market already awash in oil, it is very hard to see how oil prices can rise significantly in the short term," the Paris-based IEA said in its monthly report.

"In these conditions the short term risk to the downside (for prices) has increased," added the watchdog that advises countries on energy policy.Late last month, prices had rallied on speculation that Russia -- the largest global oil producer -- and the 12-nation OPEC cartel could discuss coordinated output cutbacks.

However on Tuesday, the IEA poured more cold water on the prospect of a potential agreement.

"Persistent speculation about a deal between OPEC and leading non-OPEC producers to cut output appears to be just that: speculation," the IEA said.

"It is OPEC`s business whether or not it makes output cuts either alone or in concert with other producers but the likelihood of coordinated cuts is very low."

And it noted that OPEC was responsible for the supply glut hitting the market, adding that sanctions-free Iran, Saudi Arabia and Iraq had "all turned up the taps" in January.

The watchdog also lowered its 2016 world oil demand forecast by 0.1 million barrels per day to 95.6 mbd.

The global oil glut worsened last month as Iran started pumping out extra barrels after the lifting of sanctions following Tehran`s nuclear deal with the West.

Crude prices have slumped by about 75 percent since mid-2014, hit also by a rebounding dollar which makes oil more expensive for buyers using weaker currencies.

The market was also rocked by OPEC`s refusal twice last year to curb record output levels as it sought to hurt high-cost US shale production.