RIYADH: Oil markets are down by more than 30 per cent in 2015. How low could it go further? Goldman Sachs has been betting on $20 oil for some time now. Again Capital founding partner John Kilduff now says US crude oil could fall to as low as $18 per barrel in 2016.

“The supply-demand imbalance could force oil down an uncontrollable chute, such that prices could “drop to $25, $20 or even $15, as some aggressive put buyers are speculating,” Canadian bank BMO is asserting.

“Headwinds (are) growing for 2016 oil,” Morgan Stanley said in its outlook for 2016. “The hope for a rebalancing in 2016 continues to suffer serious setbacks,” it added.

Crude is in very much for a slog in 2016. It may hit $32 a barrel this year, says Tom Kloza of Oil Price Information Service.

“Market will be most severely tested in February, March and April when we get Iranian crude and we have refinery maintenance,” Kloza emphasised.

The first half of 2016 is looking “pretty ugly” for hammered oil prices that are poised for even more losses, John Kingston, of McGraw Hill Financial Global Institute’s emphasises.

While some recovery in prices - perhaps at $60 a barrel - may take place at the end of 2016, “you would hit a price in the 20s before you would certainly get there, Kingston added.

And there are reasons for this gloom.

Defying all odds, US crude production rose to 9.2 million bpd last week from 9.1mbpd last month. Crude supplies in Cushing, Okla., a key storage hub and the delivery point for Nymex futures, rose to 63 million barrels, a record in weekly data going back to April 2004.

Concerns earlier in the year that Cushing could run out of room to store oil is also now weighing heavily on prices.

US crude inventories too rose by 2.6 million barrels in the week ended on Dec 2.

In the meantime, Russia’s oil output touched a post-Soviet record of 10.86mbpd late December. Russian output was boosted by the OAO Novatek-led Yargeo venture’s Yarudeyskoye field, which started producing on the first day of the month. Output from the deposit will rapidly reach 70,000 barrels a day, the company said on Dec 1.

A new tax regime in Russia could pave the way to a further increase in output from fields in Western Siberia.

Russian Energy Minister Alexander Novak said oil production in Western Siberia, once a major contributor to overall output, was declining at an average rate of around 1 per cent per year. Changes in a tax system, where so-called excess profits will be taxed at 70pc, will make Western Siberia commercially viable. Under the current tax regime, Novak said about 73 billion barrels of oil are not economic.

“Changes in the tax system are to create conditions to make production of this oil commercially viable,” he said in an interview.

While most Opec members continue to produce at elevated levels, Iran too is gearing up to flood the market with 500,000 bpd within weeks of sanctions being lifted while the ceasefire in Libya may also add extra barrels.

Glut continues to dominate!

And global economy is not in the best of the health, dampening the demand growth scenario. IMF chief Christine Lagarde is now asserting that global economic growth would be “disappointing” in 2016.

Weak data from major oil buyers China and Japan is also contributing to market woes. Chinese industrial profits reportedly declined 1.4pc in November, and in Japan, industrial production fell 1.0pc in November from a month earlier.

Brimming oil inventories in Europe and Asia are a cause of concern too. Bjarne Schieldrop, of SEB says, “oil inventories in Asia are going to get closer to saturation in the first quarter.”

Khalid Al-Falih, Saudi Aramco chairman too is not anticipating any immediate rebalancing of the markets in 2016.

“Supply has plateaued in North America and [is] declining by significant amounts. We expect that to continue and perhaps accelerate in 2016,” yet, he stressed, crude oil markets are likely to balance, yes, but only “some time in 2016.”

Some hope thus still exists– it seems!

Published in Dawn, January 3rd, 2016