Oil prices may remain low in 2016, too

Oil stocks from countries in the Organization for Economic Cooperation and Development (OECD) stood at a record near 3 billion barrels by the end of September. Still, the IEA predicts that supplies outside Opec will decline next year by the most since 1992 as low crude prices take their toll on the US shale oil industry

International crude oil prices plunged to fresh lows with the price of the Organisation of Petroleum Exporting Countries (OPEC) basket of twelve crudes going below the $40 a barrel level for the first time in 11 years. The new OPEC reference basket of 12 crude oils closed at $39.21 a barrel on the previous trading day on Friday. The last time it fell to $39 was in 2004.

Global oil demand growth has not been fast enough to soak up the excess in supplies and analysts say a rebalancing of the supply-demand situation is needed for a sustained uptick in prices. "US crude inventories breaking to a new high and production inching upwards should have been the reason for the market shakedown", Singapore-based Phillip Futures said, referring to a 4.2-million barrel crude inventory rise by last week against a market expectation for a 1.3-million barrel gain, according to www.heraldvoice.com.

The International Energy Agency (IEA) also said that oil stocks from countries in the Organization for Economic Cooperation and Development stood at a record near 3 billion barrels by the end of September. Still, the IEA predicts that supplies outside Opec will decline next year by the most since 1992 as low crude prices take their toll on the US shale oil industry.

Benchmark US crude futures slipped to a two-week low at $43,55 a barrel and were trading down over half a dollar from their last close at $43,68. The traded Bloomberg Commodity Index fell below 83 points this week to level not seen since 1999, and it is down 40 per cent since the oil rout began a year ago. "It now seems only a question of time before it drops below the $40 per barrel mark", analysts at Commerzbank AG in Frankfurt including Carsten Fritsch said in a report, adds the Harald Voice.

EIA expects that Brent crude oil prices will average $54 per barrel and WTI will average $50 per barrel for full-year 2015. Futures fell 8% the past week, the biggest decline since March. Despite the resilience of producers such as Russian Federation, non-OPEC supply is forecast to contract by more than 600,000 per day next year. Meanwhile the US Department of Energy projected that United States crude oil production will fall to an average 8.77 million barrels a day in 2016 from 9.29 million barrels this year.

Oil traders have shifted to hold a more bearish outlook on crude prices this year and into 2016, with data showing the number of sell options taken out at $40, $35, $30 and even $25 a barrel has jumped in the past four weeks. Benchmark U.S. crude futures were trading at $41.50 per barrel on Friday, not far off 2015 lows and more than 15 per cent below levels reached after a rally starting in August had stirred market expectations that a price rout starting in June 2014 may be ending. Now, Reuters data shows that open interest in put options in U.S. crude futures - which shows the number of unsettled deals betting on lower prices - has soared over the past four weeks.

"The trend is your friend, and the trend is down. It looks very bearish," said Oystein Berentsen, managing director of crude oil at Singapore-based Strong Petrochemical. "We've seen more producers selling, even at these low prices," he added.

Traders also seem to be positioning for cheap oil well into next year, with the number of options to sell at $30 a barrel in March 2016 jumping from virtually zero before August to almost 12,000.

Similar positions are being taken in internationally traded Brent futures, with the volumes of options to sell at $40, $35, $30 and even $25 per barrel if prices fall to those levels between December this year and June 2016 all soaring over the last month. Front-month Brent crude is currently trading at around $44 per barrel.

"A year end recovery in commodity prices remains unlikely with a stronger US$ and EM (emerging market) growth concerns," ANZ bank said, referring to a surge of the greenback versus most other currencies on the expectation that the U.S. Federal Reserve will raise interest rates soon.

A stronger dollar makes oil, in which it is traded, more expensive for importers using other currencies domestically, acting as a drag on crude prices. Weakness in Asia's two biggest economies, China and Japan, is also weighing on prices.