During the early days of July each year, forecasts for oil supply and demand of the following year start to appear before being revised later if necessary. In this vein, Opec and IEA published their forecasts for 2016 for the first time in their July monthly reports.

While Opec’s forecast of demand for oil and other liquids and the call on Opec’s crude oil were at 93.9 million barrels a day (mbd) and 30.1-mbd respectively, the adjustment made in the August report was only to raise the demand number to 94-mbd.

As for IEA, its first forecast was at 95.2-mbd for demand and 30.3-mbd for the call on Opec, while in the August report the two numbers change significantly to 95.6- and 30.8-mbd respectively.

Such a major change is not unusual except that if does not normally happen over a short period of time. There may be an explanation for this as the organisations adjusted growth in demand for 2015 to 1.38- and 1.6-mbd respectively, such that the growth forecasts in 2016 are now closer for both.

Yet the difference in the call on Opec crude oil is stark, which means IEA is forecasting a larger drop in non-Opec production.

If this volumetric picture is so good, we are still faced with the question as to why oil prices are falling from as high as $65 a barrel in the second week of May to that on August 26 when it posted $40.51, $43.14 and $38.6 for the Opec basket of crude oils, Brent and West Texas Intermediate oil, respectively?

Of course, these are based on an estimated global economic growth of 3.2 per cent in 2015 and 3.5 per cent in 2016 ... not bad considering the weakening of the China economy. But the latest haemorrhage in the stock markets, where billions of dollars got wiped out, has not been considered yet by the oil forecasters.

It remains to be seen if the upturn in the stock markets on August 27 has legs. Whatever the case, the events underline the concern of investors about the global economy and about what some call an impending currency war given the devaluation of the yuan and the recent announcements that the Federal Reserves will not raise interest rates in September.

The increase in supplies of oil is far bigger than the growth in demand now or what is perceived for 2016. Therefore, stocks are rising and weighing on oil prices.

The commercial stock levels of the OECD countries reached unprecedented levels at 2.916 billion barrels by early August, an increase of 210 million barrels over the last five-year average, according to IEA. Global stocks are reported to be 4.446 billion barrels, including the strategic stocks of 1.588 billion barrels in addition to 900 million barrels on board sailing tankers.

The increase in supplies is not just by Opec production’s over its agreed ceiling of 30-mbd but because all producers tried to boost production to counter the fall in prices. Russia, for instance, increased production in June by 0.25-mbd as compared to the same period last year. The US production declined by 0.245-mbd, though fewer declines are expected in the coming months. Opec production in July was 31.53-mbd and more is expected in the coming months, especially from Iraq.

The market is concerned about the prospect of supply from Iran if all goes well with the approval by the US Congress of the nuclear deal. But this is not going to happen overnight and estimates vary about how much additional oil Iran can put in the market by the second-half of 2016, with 0.6- to 1.0-mbd estimates being floated in addition to the sale of its floating stock of 40 million barrels.

Iran and some other members of Opec may desire an emergency meeting of the organisation to look into the question of falling prices. But there are no indications this is going to happen. Therefore, the Iranian Oil Minister Zanganeh spoke on August 26 on state television about the importance of not losing market share and that “protecting Iran’s share in Opec and the world markets is our vital parameter.”

The expectation that non-OPEC production may fall in 2016 may not necessarily raise prices, even if current Opec production remains the same. And it will not due to increases from Iraq and, possibly, Libya and Iran, adding to an already brimming stocks.

Notwithstanding the jump in oil prices on August 27, which was a reaction to the news that the Federal Reserves will not raise interest rates soon, oil prices are expected to head further south unless a major change in producers’ policies is on the cards.

While the IEA is saying “lower for longer”, we should expect forecasters to reassess future oil prices soon.