Psychological forces have helped oil to recover slightly, after both popular crude benchmarks hit new 12-year lows during the morning session, with Brent and WTI tumbling to $31.42 and $31.41, respectively. The weight that continues to push these two down was aided by the Chinese equity market, which has been tumultuous and severely affecting the country’s forecast for energy demand. As stockpiles of oil grow continuously around the world, the price of crude even this early in the year has declined nearly -20.00%. There are other trends that threaten to show oil record lows, namely the political situation between Iran and Saudi Arabia, and the unwillingness of Chinese policymakers to install meaningful reforms. The former problem is a double-edged sword, with Iran already promising to increase output by 500,000 barrels per month and the tension unlikely to lead to output controls. Saudi Arabian stocks have already dropped on the news, as demand and supply increase momentum away from equilibrium.
Comments on oil from influential institutions like Morgan Stanley (N:MS) and Goldman Sachs (N:GS) reveal what larger investors think about the events, with the former company seeing downside to around $20-25 per barrel due largely to the US dollar. Goldman Sachs agreed that the dollar presents a complicated obstacle to vault, but also attributed the poor results in oil to the imbalance between supply and demand. Capacity issues are dire, with forecasts of storage tankers reaching full levels within a few months and numbers at Cushing close to the same. The Oklahoma facility has estimated full capacity at 73.0 million barrels, with the most recent count seeing 63.9 million in storage. With most producing countries unlikely to reduce output, inventory levels will probably not drop significantly unless the US cuts production. The report that printed Cushing levels at last count was released on January 1, with the next such report due on the 8th. Strong anticipations of growing inventories will continue to keep prices under pressure this week.