RIYADH: The oil deluge from Iran is expected any day. Sanctions could be lifted in days. And crude markets are wobbling with its possible impact. Others factors are coming into play too.

“China macro concerns and to some degree the continued strength of the US dollar have been providing headwinds for the oil markets. The supply side is still very resilient. Demand is not great and inventories are likely to keep getting quite a bit higher,” Citi analysts said while summing up the scenario.

Markets have lost some 17pc within the first two weeks of 2016. Any additional oil would only add to pressure. Barclays said it had raised its estimates of Iranian oil supply, by almost 700,000 bpd more in the fourth quarter of 2016 than over the same period in 2015, once sanctions are lifted. This has resulted in lowering their forecast for the average price of Brent and WTI in 2016 — to $37 a barrel this year, down from $60 and $56 previously.

“With no apparent signs of strengthening demand, and only further indicators of future global supply growth, the outlook for oil prices is leading most market watchers to ratchet down estimates for oil prices in 2016 and 2017,” analysts at Cenkos Natural Resources said.

“In the very short term, another price drop cannot be excluded in particular after sanctions against Iran are lifted,” Commerzbank analyst Carsten Fritch told Reuters Global Oil Forum. “That means a drop toward $25 is quite possible.”

“Most of the bearishness is coming from worries over Iranian sanctions being lifted,” said Daniel Ang, of Phillip Futures. “I won’t be surprised if prices continue falling toward $25 per barrel.”

Morgan Stanley says WTI will fall to $20 as the US dollar strengthens. That was bullish compared to the one made by RBS for oil to hit $16 a barrel. Standard Chartered is suggesting oil prices to “fall to as low as $10” before the sell-off “had gone too far.”

A few analysts however, are taking the line that Iran’s return would have a muted effect, as it was already priced in by the markets. “The lifting of the sanctions has been widely expected and it is difficult to say that it is not yet priced in Brent at $30 a barrel,” said Olivier Jakob of Swiss-based consultancy Petromatrix.

In the meantime, factors other than Iran are also coming into play. Dwindling crude storage capacity – worldwide – is also a cause of concern. Global inventories are at record highs, the Paris based IEA says.

Stocks are rising in the US too. As per an EIA report last week, US gasoline stocks surged by 8.4 million barrels, while distillates stock jumped by 6.1 million barrels. Pressure on storage is on up. Storage at Cushing is already touching the record high level of 64 million barrels as compared to its maximum capacity of 73 million barrels.

Brian Busch of Genscape, an industry data gatherer, says it’s a similar story in China, with ships carrying oil spotted waiting at anchor out at sea because storage tanks appeared to be full.

And in the midst of all this, demand is caving in too.

“The global glut issue has been around for a while. Right now, it is the fear of a Chinese slowdown that is spooking the market,” said Barnabas Gan, a commodity analyst at OCBC.

A Reuters report points out that purchases of oil by China had already begun to fall in November 2015, the last month for which data is available. In a note, Barclays said that implied oil demand (in China) had fallen 4.7pc month-on-month in November, or 2pc compared to the same month in 2014. The bank expects further declines this year.

BRICS also doesn’t seem to be doing well. Brazil, formerly described as a champion of the global south, is now reeling because of its challenged economy – made worse by a corruption scandal centered on its oil giant Petrobas.

IMF chief, Christine Lagarde, is hence pointing to the “new reality” of slow growth and worrying uncertainty. A new era seems dawning. Markets are entering a new, slower, phase of economic cycle.

Crude is no exception.

Published in Dawn, January 17th, 2016