US$10 - $20: That is how low oil prices could get

“In light of prices already falling towards US$30 without the increase in Iranian crude, it would seem that US$20 is a possibility,” Phillip Futures analyst Daniel Ang said.

Source: CHANNEL NEWSASIA

SINGAPORE: As crude oil prices slide further to 12-year lows this week, market watchers are slashing their price forecasts yet again, with some predicting US$20 a barrel becoming a distinct possibility.
Analysts at the likes of Morgan Stanley, Goldman Sachs, Citigroup and Bank of America Merrill Lynch earlier this week lowered their oil price assumptions for 2016 to the US$20 level, while Standard Chartered was the most bearish with a call for oil to tumble as low as US$10 a barrel.
As of Wednesday’s early Asian trade, US West Texas Intermediate crude (WTI) traded at US$30.88 a barrel, nudging up slightly from Tuesday’s intra-day low of US$29.93 which was last seen in December 2003. Meanwhile, Brent crude traded at US$31.20 a barrel, after bottoming at US$30.34 on Tuesday.

Year-to-date, oil prices have lost nearly 17 per cent and are about 70 per cent lower from their peak in June 2014.

An increasing likelihood of a deeper devaluation in the Chinese yuan, also known as the renminbi, has been singled out as the prime culprit behind oil’s dismal start to the new year.
“China is an instigator of the recent selloff, as markets worry about China’s oil demand for the year,” Daniel Hynes, senior commodity strategist at ANZ, said in a telephone interview. "Markets continue to price in the worst scenario.”
Decelerating growth in the world’s top commodity importer has been fuelling fears of slowing demand - further squeezing a battered oil market already struggling with massive oversupply. More weakening in the yuan would render dollar-denominated oil even more expensive and deal yet another blow to demand.
“[Weak yuan] could lead to another round of commodity weakness and send oil into the US$20s,” Morgan Stanley’s analyst, Adam Longson, wrote in a report dated Jan 11.
Coupled with a strengthening US dollar, which has been given a boost following last week’s upbeat nonfarm payrolls report, it is unsurprising that market watchers continue to dial back their estimates for an oil recovery.
According to Phillip Futures analyst Daniel Ang, hedge funds are increasing their short positions on WTI crude, implying a sense of “strong bearishness”.
Meanwhile, news that Saudi Arabia is considering a float of state-owned Saudi Aramco, the world's largest oil producer, has also fuelled more uncertainties, according to Ben Pedley, head of investment strategy for Asia at HSBC Private Bank.