Oil prices headed for a second year of steep losses, despite inching up fractionally in the last trading hours of 2015, as record Organisation of the Petroleum Exporting Countries supply created an unprecedented global glut that may take another year to clear.
US West Texas Intermediate (WTI) crude futures traded 11c higher at $36.71 a barrel at 0936 GMT yesterday and Brent was 20c higher at $36.66 a barrel.
Prices fell three per cent on Wednesday as crude inventories in the US rose 2.6 million barrels last week, the US Energy Information Administration said, echoing high stocks in Europe and Asia.
“We have brimming oil inventories in Europe. And our predictions are that oil inventories in Asia are going to get closer to saturation in the first quarter. Which means that most of the global surplus will have to be stored in still available storage capacity in the US,” Bjarne Schieldrop chief commodity analyst at SEB in Oslo said.
The immediate outlook for oil prices remains bleak. Goldman Sachs has said prices as low as $20 per barrel might be necessary to push enough production out of business and allow a rebalancing of the market.
Morgan Stanley said in its outlook for next year that “headwinds (are) growing for 2016 oil.” The bank cited ongoing increases in available global supplies, despite some cuts by US shale drillers in particular, as well as a slowdown in demand as the main reasons.
“The hope for a rebalancing in 2016 continues to suffer serious setbacks,” the bank said.
Traders expect some US oil to be supplied into global markets, following the surprise lifting of a decades-old US crude export ban in December, which ended a years-old discount in US crude prices to international Brent.
US crude oil exports are likely to help reduce congestion concerns in the US
“At a time when US shale is facing headwinds due to the collapse in crude oil prices... US crude oil exports are likely to help reduce congestion concerns in the US,” ING bank said.
Brent prices briefly fell below $36 per barrel this year, effectively wiping out the gains from a decade-long commodity super-cycle sparked by China’s unprecedented energy demand boom.
The downturn has caused pain across the energy supply chain, including shippers, private oil drillers and oil-dependent countries from Venezuela and Russia to the Middle East.
Analysts estimate global crude production exceeds demand by anywhere between half a million and two million barrels every day. This means that even the most aggressive estimates of expected US production cuts of 500,000 bpd for 2016 would be unlikely to fully rebalance the market.
Oil began falling in mid-2014 as surging output from the Opec, Russia and US shale producers outpaced demand.
The downturn accelerated at the end of 2014 after a Saudi-led Opec decision to keep production high to defend global market share rather than cut output to support prices.
Opec failed to agree on any production targets at its December 4 meeting in Vienna, cementing its decision to protect market share, as the organisation braces itself for the return of Iranian exports to the market after the lifting of western sanctions.
Russia and Opec are showing no signs of reining in production, leading traders to establish record high active short positions in the market that would profit from further crude price falls.