Oil ends 2015 in downbeat mood, hangover to be long and painful

When asked about production in 2016, Zahir said: “We are still going to see a tremendous amount of oil being pumped”. Analysts had predicted crude stockpiles would decline.

But by Thursday, the market got a lift on reports that President Barack Obama’s administration is preparing financial sanctions against Iran, the first ones since the nuclear agreement was reached in July. Mehdi Assali, the director of affairs Organization of Petroleum Exporting Country affairs at the Iranian Oil Ministry, said that, with production costs of around $10 per barrel, Iran stands in a unique position.

Oil prices seem to have taken the place of the Fed in headlines and market focus. Activity in China’s manufacturing sector is expected to have contracted for a fifth straight month, a Reuters poll showed, likely consigning the world’s second-largest economy to its slowest annual growth rate in 25 years. But with the spread at parity or negative, shipments into the US will probably remain elevated, which may create storage problems on the Gulf Coast during the first half of 2016, Citigroup Inc. said in a research report on Wednesday.

Meanwhile, the average value for monthly 2016 Brent contracts is $40.89 per barrel, just $3.50 above current prices and well below the analysts’ forecasts for the year’s average.

That confounded expectations for a 2.5-million-barrel drop, and came alongside news of rising USA production.

From the 2008 top, the price of WTI Crude Oil could be tracing out a sideways consolidation.

Part of the problem has been a disjoint in the usual relationship between supply and demand, and for a long period in 2015, while the price was falling, supplies were actually increasing. While U.S. output is down from a peak in April, production has fallen more slowly in response to low prices than many investors initially expected. The downturn gained pace at the end of 2014 after a Saudi-led Opec made a decision to keep production high to defend global market share rather than cut output to prop up prices.

Oil accounts for 75% of Saudi Arabia’s revenue and the country’s finances are getting slammed. “There hasn’t been a significant cutback in oil production and there is the additional threat of Iran boosting exports”. Its government has for years used the money it makes producing oil to pay for pensions, health care, social benefits and even to subsidize housing and grocery stores.

On Wednesday, the crude oil future dropped once more as a weak outlook prevails.

At those low prices, Americans previous year saved more than $115 billion on gasoline, or an average of $550 per driver, AAA said.

And US benchmark West Texas Intermediate (WTI) oil tanked on December 21 to 33.98 a barrel – which was a point last seen in mid-February 2009.

February heating oil futures were flat at $1.11 a gallon.

“Shale has changed the world and really changed the whole global market, ” said Tariq Zahir, managing member of Tyche Capital Advisors.