Crude oil hits multi-years low in 2015, may bounce back

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New Delhi | December 19, 2015 2:27 PM

For consecutive two years in a row, crude oil prices have been on a downward spiral. In 2014, WTI and Brent crude oil both lost around 46 per cent and 48 per cent, respectively, as intrinsic fundamentals of over supplies dominated the demand side equation creating a downward pressure.

Crude oil pricesFor consecutive two years in a row, crude oil prices have been on a downward spiral. In 2014, WTI and Brent crude oil both lost around 46 per cent and 48 per cent, respectively, as intrinsic fundamentals of over supplies dominated the demand side equation creating a downward pressure. (Photo: AP)

For consecutive two years in a row, crude oil prices have been on a downward spiral. In 2014, WTI and Brent crude oil both lost around 46 per cent and 48 per cent, respectively, as intrinsic fundamentals of over supplies dominated the demand side equation creating a downward pressure.

This fall in prices continued in 2015, as both the crude variants lost its value by around 30 per cent and 33 per cent, respectively. Crude also hit its 11-year-low this month in the international market.

The domestic markets have been purely tracking the fall in the international markets. Crude prices declined by 25.78 per cent to Rs 2,504 per barrel in the domestic markets on a year-to-date basis till December 16. The commodity was trading around Rs 3,374 per barrel on January 2 this year.

Recently after OPEC’s 168th meeting, crude prices tumbled down seeing no production cuts from the cartel instead continuing with their current levels of production i.e 31.50 million barrels per day.

Rising crude inventories in the US also had its good share in pulling down prices further. US commercial crude oil inventories (excluding those in the Strategic Petroleum Reserve) increased by almost 100 million barrels in the year 2015. According to market experts, at 485.86 million tonnes (as on December 4th, 2015), US crude oil inventories remain near levels not seen for this time of year in at least the last 80 years.

Prathamesh Mallya, senior research analyst, non-agri commodities, Angel Broking, said, “The economic data released from the US, China and Europe, state of crude inventories in the US and other parts of the globe, OPEC dilemma of keeping markets well supplied, state of US shale oil industry and its drilling activity, possibility of rate hike by the US Federal Reserve, easing of sanctions on Iran affected oil prices.”

According to the International Energy Agency estimates, global crude oil production is estimated at around 96.91 million barrel per day (mbpd) for the quarter ending September 2015 while global oil consumption stood at around 96.71 mbpd in the same time frame.

Sumit Pokharna, deputy vice-president research, Kotak Securities, said, “Rising global oil supply and lowering global demand led to sharp fall in crude oil prices. The recent fall in crude oil prices is mainly due to OPEC’s decision on December 4 to maintain current production and Russia reluctance to reduce its output.”

“OECD commercial inventories, a benchmark indicator of global demand stood at 2,971 million barrel as on October 2015 and these inventories are set to keep building at least until late 2016 indicating bleak sentiments for oil prices,” said Mallya of Angel Broking.

According to market experts, India produces around 3.5 mbpd of crude oil and this has been stable for last two years. On the contrary, India is a net importer of crude oil. India’s import dependency is approximately 80 per cent. For domestic consumption, it requires imports of around 77 per cent of demand. Hence, falling global oil prices is a boon for Indian economy.

However, market experts are looking bullish on the further movement of crude oil price. Ritu Raj Jha, analyst, consulting (Energy), Karvy, said, “Actually, crude oil prices are expected to show some significant bounce back as they have already tested multi-year low levels. By June, 2016, crude prices may show some positive trend as that time US summer driving season will start and gasoline consumption increases during the same. Average US crude production is also expected to remain down till mid- 2016, so we can expect Nymex crude oil prices to be around $50- $60/ bbl.”

Vandana Bharti, assistant vice-president, commodity, SMC Global Securities, said, “Crude oil can trade on volatile path in 2016. The key factors which might be impact the investor’s sentiment in crude oil will possibly be the demand supply, macroeconomic events, geopolitical tensions and pace of US interest rate hike along with movement of Greenback. By June 2016 crude oil prices can hover in range of $30-45 in international market and in range of Rs 2,200-3,200 in domestic market.”

At present, WTI is trading around $35 per barrels, while Brent is around $37 per barrels in the international markets.

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