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Oil Prices Could Collapse To $20

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By Tyler Durden

Extracts from extracts…

Could oil prices collapse to $20? 

The short answer is ‘yes.’

We believe that crude oil prices could fall further unless global oil production is reduced. As shown in Table 2, we estimate that the global oil market could be oversupplied by roughly 920,000 bpd in 2016. The key assumptions are year-over-year growth in global demand of 1.2 million bpd, Saudi Arabia, Iraq and Libya hold production at current levels, Iran ramps up production at moderate pace over the course of the year and the U.S. rig count remains at current levels.

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This would translate to a build in global crude oil inventories of roughly 231 million barrels over the course of the year and potentially result in OECD crude oil inventories reaching capacity by the end of the year, as shown in Chart 14. Another risk is that Libya increases production. The countries two warring factions recently signed a UN-brokered agreement to form a national government. This could lead to higher levels of production, potentially adding another 1 million bpd to the already over-supplied market. Under this scenario, we believe that crude oil prices could plunge to $20/bbl to ensure that enough crude oil is taken off the market to prevent inventories from breaching capacity.

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