Iran's reentry into global oil markets and OPEC's continuation of oil production will make the oversupply situation worse than anticipated. The International Energy Agency (IEA) has alerted that short-term risks downside have increased. 

With lifting of Western sanctions on Tehran, Iran is making a comeback to the international oil market. On the other side of the coin, the Organization of Petroleum Exporting Countries (OPEC) denied to cut oil production. IEA in its latest report observed that it would be difficult to see how oil prices can go up in the short term. 

Market Watch reports that OPEC's crude oil production rose 280,000 barrels per day to 32.63 million barrels per day in January 2016. "In these conditions, the short-term risk to the downside has increased," IEA said in the report. Iran's oil output rose by 80,000 barrels per day in January to 2.99 million barrels per day.

Meanwhile, the oil production in Saudi Arabia and Iraq is rising. The oil production by Saudi Arabia rose by 70,000 barrels per day to 10.21 million barrels a day. Iraq's oil production rose by 50,000 barrels per day to a record output level of 4.35 million barrels a day. 

The global market is already suffering from oil oversupply and it's very difficult to forecast how oil price can move in the short term, observes Seeking Alpha in its latest story. The oil supply may surpass consumption by 11.75 million barrels per day during the first half of 2016 as against the forecast of 1.5million barrels per day. The crude futures were up 22 percent at $30.34 a barrel.

IEA further observed in the report that the "persistent speculation about a possible agreement between OPEC and non-OPEC nations on oil production cut appears to be just that speculation." The commercial oil inventories in industrialized nations were up by 7.6 million barrels in December 2016 to 3,012 million barrels and added further to January inventory levels.

Crude oil prices were hitting their worst levels since 2008-09 crisis days. The mild pre-winter weather reduced heating demand in the US. The sluggish Wall Street ahead of a possible interest rate hike in February is leaving investors clueless about the future course of direction. Bren crude futures were down four percent and trading below $38 per barrel first time since December 2008. West Texas Intermediate (WTI) is at $35 a barrel first time since February 2009, as reported by Gulf Times.

However, global oil supplies eased 0.2 million barrels a day to 96.5 million barrels per day in January. The higher OPEC production was offset by lower non-OPEC oil output. The oil production in non-OPEC nations eased by 0.5 million barrels a day. The lower oil prices are forcing shale producers in the US to close the operations. 

The higher OPEC production and lower oil demand is keeping pressure on oil prices and making the situation worse than expected, warns IEA. It forecasts oil inventory rise by two million barrels per day during the first quarter of 2016. It will be 1.5 million barrels per day in the second quarter.