Oil prices weakened on Monday after a brief rally last week.
U.S. West Texas Intermediate (WTI) futures was trading at $37.75 a barrel at 06:11 AM GMT, down 35 cents (or 0.92%), while Brent crude traded at $37.75 a barrel, down 0.14 cents (or 0.37%).
Analysts believe that oil prices will continue to drop in 2016 after plunging by almost 30 percent this year.
The Organization of the Petroleum Exporting Countries (OPEC) said that it does not expect to cut production in 2016 in an effort to hold onto market share – this would have a similar effect on prices as it did this year.
OPEC produces approximately 31.7 million barrels a day. If OPEC decides to not to cut output next year then the supply glut is likely going to continue to drag the market down.
Goldman Sachs estimates that the crude market is currently oversupplied by 2 million barrels a day.
Raymond Carbone, crude trader of Paramount Options, was quoted by Xinhua News Agency as saying: “The plunge of crude price is simply a prospect of big supply build up, strong production from both OPEC side and non-OPEC side,”
He added: “Nothing they [OPEC] did in that meeting suggested production cut will come in the near future. 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.”
Damien Courvalin, analyst of Goldman Sachs, said in a report that demand for oil in the global market isn’t expected to be level with supply until the fourth quarter of 2016.
In September Goldman Sachs warned that prices could drop to as low as $20 a barrel in 2016:
“While not our base case, the potential for oil prices to fall to such levels, which we estimate near $20/bbl, is becoming greater as storage continues to fill.”
Goldman Sachs analysts wrote in a report earlier this month:
“The post-OPEC oil price decline accelerated as the discord between members became more apparent and the lack of a supply response more certain. The meeting confirmed our view that it is not in OPEC’s interest to balance the market in the face of still growing higher-cost production,”
Daniel Ang, an analyst with Phillip Futures, was quoted by The Wall Street Journal as saying:
“Prices over the next two weeks will not be indicative of the longer term trend for 2016. Volumes will remain low due to the holiday season,”
Mr. Ang told the WSJ that he forecasts US oil stockpiles to drop, however, prices may still ‘remain bearish’ as the US is likely to begin exporting the commodity – the country’s ban on oil exports was lifted earlier this month.