The International Energy Agency has issued a blunt slap down to the so-called “oil bulls” who see an imminent rebound in prices and the market returning to a more stable supply and demand equilibrium.

The OECD’s Paris-based energy forecaster said a price rally late last month was most probably a false dawn for struggling oil producers.

Brent oil dipped below $US28 a barrel back on January 20, before rallying 25 per cent back to $US35 a barrel, and then edging down again.

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However in its Monthly Oil Report, the IEA found there was little foundation to the newfound optimism that better days lay ahead for oil prices.

It said there were five main arguments supporting the bull case:

Production cuts

The IEA said persistent speculation about a deal between OPEC and leading non-OPEC producers to cut output appears to be just that: speculation.

“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,” the IEA said.

“This removes one driver of bullishness.”

Weak production growth

Another widely-held view is OPEC production — other than Iran — will not grow as strongly in 2016 as it did in 2015.

“Although it is still early in the year, Iraqi output in January reached a new record and it is possible that more increases could follow,” the IEA said.

“Iran has ramped up production in preparation for its emergence from nuclear sanctions, and preliminary data suggests that Saudi Arabia’s shipments have increased, thus, another driver might be removed.”

Demand growth

Another driver of bullishness is oil demand growth will receive a boost from the collapse in oil prices to below $US30 a barrel.

The IEA maintains its forecast global oil demand growth will ease back considerably in 2016 to 1.2 million barrels a day (mb/d).

That still represents a respectable 1.2 per cent growth but there has been nothing to suggest it should be revised up.

Indeed with China, Russia and Brazil struggling, there was every chance the IMF’s global GDP growth forecasts of 3.4 per cent this year and 3.6 per cent in 2017 are overly optimistic.

Or as the IEA put it: “Economic headwinds suggest that any change will likely be downwards.”

Cut in non-OPEC production

The IEA assumes total non-OPEC output will fall by a net 600,000 barrels per day in 2016.

The IEA analysis found it could be conservative — and many “Big Oil” executives have suggested it is — but there is a lingering feeling a meaningful drop in production from US shale producers is taking an awfully long time to happen.

“Perhaps resilience still has some way to go,” the IEA suggested.

Even on the relatively optimistic assumption that global production remains flat at 32.7 mb/d, the IEA modelling found oil stock would be building at 2 mb/d in the first quarter this year, followed by a 1.5 mb/d build in the June quarter and the dynamic of supply outstripping demand continuing well into the second half of 2016.

“If these numbers prove to be accurate, and with the market already awash in oil, it is very hard to see how oil prices can rise significantly in the short term,” the IEA said.

And if there are risks to these forecasts, the IEA points out they are likely to be to the downside for oil prices.

US dollar to stay weak

The IEA said a factor that helped sentiment is the recent fall in the value of the US dollar against some currencies and the perception that this reduces the cost of imported oil.

“Although it is widely believed that interest rate hikes in 2016 in the United States and the United Kingdom are increasingly unlikely, the dollar is still likely to remain strong as it benefits from its safe haven status with other economies faring relatively worse,” it said.