The International Energy Agency (IEA) expects the demand for oil to slow by 25% this year from last year’s levels. That means the agency sees a demand of 1.2 million barrels a day in 2016 compared to 1.6 million barrels a day last year. That is bad news for the oil sector as the global oil price is already trading near 12-year lows with little possibility of a significant slashing of production.

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Notable Drags on Price

The IEA said that the notable dampeners of the demand outlook were Europe, China and America. In the report, the agency indicated that it was able to see the early elements of the estimated slowdown in the December quarter of last year.

In January, the oil supply fell 0.2 million barrels to 96.5 million barrels as increased output from OPEC offset lower production from non-OPEC countries. While supplies from non-OPEC nations dipped 0.5 million barrels a day from December, the IEA expects a fall of 0.6 million barrels a day to a total of 57.1 million barrels a day for this year.

OPEC Output Rises

Significantly, OPEC has not been reducing its product and instead increased production by 280,000 barrels a day in January. That was mainly due to increased supply from Iraq, Saudi Arabia, and sanctions-free Iran. In January, the group’s supply was close to 1.7 million barrels a day higher than last year. That clearly indicated that OPEC was firm on its policy to retain its market share and was not worried on the pricing front.

IEA said that the seasonal maintenance in the Unites States has helped refinery runs drop by 1.3 million barrels a day in January. The weakening margins also forced refiners to slowdown their runs. Nonetheless, global production gains persisted. Gains came from the Middle East and the US.

In any case, the current outlook does not provide a favorable climate for oil prices to stage any recovery.