US energy expert believes oil will fall below the $30 mark
A top US commodities analyst has said that the price of crude oil could drop below $30 (€27) a barrel in 2016 and that all of the signs from data in the US and China suggest the global economy is heading for another serious recession.
Stephen Schork, President of the Schork Group, told the Sunday Independent: "The price of oil now doesn't reflect the economics of taking a barrel of oil out of the ground and refining it; the market now is trading on psychology. We got down to $32.40 per barrel during the great recession of 2009, so we certainly believe that it we could see the $30 [per barrel] barrier broken in the coming year."
Oil has tumbled in value on the London-based ICE and the New York-based NYMEX over the past 18 months, with the NYMEX price tumbling from over $100 per barrel to just over $40 per barrel near the end of August, before recovering somewhat to just over $46 on Friday.
However, Schork, who pens an influential report which has become one of the leading market intelligence resource for analysts covering the energy markets, believes that the recovery is a temporary one and that issues on both the supply and demand sides for oil in the coming year will push the price of crude oil down ever further.
"[On the supply side] there is going to be a significant reduction in production in North America as producers in the US and Canada are facing a liquidity crisis, but at the same time you are going to see strong production in OPEC.
"The chasm between the Sunni side of OPEC and the Shia side of OPEC has never been greater, especially now that the White House Iran nuclear deal looks like it is going to go ahead.
"At some point, we are looking at seeing a significant amount of increased production coming out of Iran to the market. Of course, Saudi Arabia doesn't like that and is not going to cede market share to the Iranians, so we are looking at considerable strong global production into 2016. which I think will help continue to suppress price for crude oil", he said.
Schork also warned that the demand for oil is likely to dip as data coming out of the major world economies suggests that the world is headed towards a global economic recession for the second time in five years.
"The other concern is on the demand side - the oil markets, the steel markets, the copper markets, all of the industrial markets have crashed this past year. When this happens, it's like a canary in a coal-mine, we're getting a tell-tale that something is not right.
"The kind of numbers we have seen for factory orders in the US we have only ever seen during recessions - and these are numbers that go back to 1958", he said.
Schork's analysis for the Sunday Independent also factored in the problems facing the Chinese economy, where he said that despite cutting interest rates five times since November, devaluing the Yuan against the US dollar and the state bank pumping liquidity into the stock market, "the stock market is still falling".
Sunday Indo Business