Oil Slide Sees New Lows

Market Trends - 12/01/2016

Oil prices are bouncing modestly after hitting new multi-year lows earlier in the session. Brent fell to a new 12-year low of $30.42 with West Texas Intermediate dropping to $30.41 per barrel. Turmoil in Chinese financial markets combined with comments from the Government dispelling rumors of further stimulus have spread across the continent to other regions, bringing equity carnage global.  Since the beginning of the year, crude prices have plunged a further -20.00%.  With prevailing economic conditions in China worsening despite optimistic comments from policymakers, demand for energy is expected to weaken further as soft Chinese growth is matched by burgeoning energy supplies. Furthermore, Iran is preparing for the resumption of higher exports, planning to boost production and sales of a new grade of crude oil near the end of the first quarter. The news led regional benchmarks lower with Saudi Arabian stocks declining further amid fears of a protracted price war. The tensions between the two OPEC rivals is high with both planning to produce at record levels to snap up market share.

Alongside the prevailing fundamental situation were bearish remarks from large financial service corporations that helped prices ease to new multi-year lows.  According to analysts at Morgan Stanley, a sustained global oil glut and a strong US dollar will weigh on oil prices over the near-term, pressuring prices towards approximately $20-$25 per barrel. Similarly, Goldman Sachs corroborated the rationale for the declines, focusing on the onshore inventory story with storage tanks for oil forecast to reach their limit at some point in the coming months. Recent statistics show that the bustling American facilities in Cushing, Oklahoma have a total working capacity of 73.0 million barrels with the week ending January 1st seeing 63.9 million barrels in storage. Until US oil production declines sharply, inventory levels are unlikely to fall.  As the Energy Information Administration prepares to announce inventories on Wednesday, speculation of rising stockpiles for the week ending January 8th will keep the pressure on prices.


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