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News Analysis: Oil prices to remain low well into 2016

Pubdate:2017-11-01 11:44 Source: Click: times

NEW YORK, Dec. 27 (Xinhua) -- Crude prices have gone down nearly 30 percent this year, and analysts expect oil prices to remain low for even longer.


Lower oil prices are generally good for U.S. consumers and the economy, said Jason Bordoff, founding director of the Center on Global Energy Policy with Columbia University, in an article.

"Gasoline prices are currently at the lowest level for this time of year since 2006, ... Those gasoline savings of nearly 100 dollars per month per household will act like a tax cut for consumers and could stimulate the U.S. economy," he wrote.

Oil is the primary cost for making gasoline, and every 10 U.S. dollars decline in the cost of oil can reduce gas prices by nearly 25 cents per gallon.

U.S. average gas prices dropped below two U.S. dollars per gallon on Dec. 21 for the first time since March 25, 2009. More than two-thirds of stations across the United States are selling gas under two dollars per gallon, according to American Automobile Association (AAA).

AAA estimated that cheaper gas prices have saved Americans more than 115 billion dollars on gasoline so far this year, or more than 550 dollars per licensed driver. More than 91 million Americans plan to take advantage of cheaper gas prices to drive 80 kilometers or more during this holiday period.

"Drivers across the country are celebrating the historic return of cheaper gas prices," said AAA's President and CEO Marshall Doney. "The lowest gas prices in nearly seven years are a holiday gift that few consumers could have imagined when gasoline was 4 dollars a gallon."


Brent oil price hit 11-year low on Dec 21, while U.S. oil price hovered around the nearly seven-year low area.

"The plunge of crude price is simply a prospect of big supply build up, strong production from both OPEC side and non-OPEC side," said Raymond Carbone, crude trader of Paramount Options.

Organization of the Petroleum Exporting Countries (OPEC) held a meeting on Dec. 4 and decided to keep crude production at the current level in an already oversupplied market.

The OPEC currently produces about 31.7 million barrels a day and has refused to cut its output, which made traders worry that the prolonged supply glut would continue to drag the oil market down.

Currently crude market is oversupplied by 2 million barrels daily, according to the estimation of Goldman Sachs.

"Nothing they did in that meeting suggested production cut will come in the near future," said Raymond, "I don't think that (the result) is a big surprise of the meeting, but you see that market has gone down since that meeting."

Thanks to the U.S. shale oil revolution, American oil production has almost doubled in the past six years. U.S. oil output has risen from 4.6 million barrels a day in 2008 to around 9.2 million barrels a day currently, according to the data from U.S. Energy Information Agency (EIA).


Analysts expect crude prices to remain relatively low well into 2016 and maybe longer.

"The low of 2009 is in the 34 dollars area, the market is looking to that as we come to the end of the year," said Raymond. "It has been a waiting game for the producers to see if the price can pay for the cost."

OPEC's production in 2016 will remain modestly above the current level, at 31.8 million barrels per day, while that of Iraq, an OPEC member, will be slightly below its current level and Iran, also an OPEC member, will see a modest growth in output, said Damien Courvalin, analyst of Goldman Sachs in a report.

The supply-demand balance in global oil market won't be restored until the fourth quarter of 2016 due to the high surplus, resilient non-OPEC supply, and slightly weaker yet still robust demand growth, Courvalin said.

Goldman Sachs suggested that oil prices could be near 40 U.S. dollars per barrel, or roughly the current trading price. It also predicted a worst scenario where prices could hit 20 dollars per barrel.

According to a projection of the EIA, the U.S. crude oil production will average 9.3 million barrels per day this year and fall to 8.8 million barrels per day next year. In addition, the agency forecast that U.S. crude oil prices could average 49 dollars per barrel this year and 51 dollars per barrel next year.

Francisco Blanch, head of Commodities Research at Merrill Lynch, told reporter that a strong U.S. dollar and restrained global growth could create downward near-term pressures on commodity prices -- not just in metals, but also in energy and grains. He predicted that oil balances are set to improve in the second half of 2016, with the combination of global demand and lower non-OPEC output potentially pushing crude oil back up to 55 dollars per barrel.

"We have witnessed a dramatic shift in gas prices that has saved families hundreds of dollars so far this year," said AAA's President and CEO Marshall Doney. "The best news of all is that there is room for prices to drop even more in the coming weeks."

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