Sun is about to set on 2015. And it has been a terrible year – as far as the oil industry is concerned. Decline in industry fortunes continued despite unrests in parts of the Middle East and oil fields coming offline as the supply glut persisted. Geopolitics too took a back seat - not impacting - as much as it used to in yesteryears. After hitting a high near $108 a barrel in mid-2014, West Texas Intermediate crude and Brent, both are languishing at around $35 a barrel after spending much of this year below $50. Yet, on the back of better-than-expected inventory data and a broadly bullish report from OPEC, the markets staged a small rally, as the holiday season approached, rising above the lows registered a few days earlier. The data from the Energy Information Administration showed US stockpiles fell by around 5.8 million barrels last year, far better than the 1.1 million rise expected. This helped ease some immediate concerns about oversupply. The OPEC report also contributed to the rally, as it pointed to higher overall demand in the coming five years. Defying some recent ultra-bearish forecasts for next year, the OPEC report also suggested oil price recovering to $70 a barrel over that time, including a modest move higher in 2016. Yet the overall mood of the markets for 2016 is not bullish – to say the least. And Iran is the camel in the tent. The International Monetary Fund (IMF) is now projecting that resurgence in Iranian oil exports next year could push crude prices down by $5 to $15 a barrel, deepening a market downturn that already has deeply bruised the industry. And this is despite the fact that the markets have likely baked in some of the impact of Iran's future exports. Yet IMF believes crude prices could sink further once the Iranian oil production actually begins to rise. The IMF said the oil market's reaction to Iran's return will depend largely on OPEC and its output policy. And as per the IMF, since it's unlikely the group will lower its output to make room for the incoming Iran, markets could sink further. In its December oil market report, the Paris-based International Energy Agency (IEA) too had cited Iran's extra oil as one factor behind the prediction that global inventories will climb by 300 million barrels next year. In 2016, crude markets would also need to account for a possible rise in Libyan output. The accord signed between the Libyan rival factions may pave the way for shuttered oil fields and export terminals to be reopened - from the current below 400,000 bpd output. Before disaster struck Benghazi, the country was exporting around 1.6 million bpd of sweet crude. Though Morgan Stanley seems skeptical of a sustained Libyan recovery, an increase in output by 400-600 thousand bpd from the war-torn country may delay any re-balancing in the oil market until 2017. China - the global growth engine - remains a big if. The Chinese dragon is slowing down. Chinese GDP slowed in the third quarter of 2015 to 6.9 percent, marking a six-year low. The manufacturing and construction sectors did also decline. With markets faced with glut, the slowing Chinese economy is bad news for the oil markets in 2016. A strengthening US dollar and a deal to lift the tight restrictions on US crude oil exports, which have been in place for 40 years, are also expected to weigh on prices. An unusually mild start to the winter in the northern hemisphere, partly because of the El Niño weather phenomenon, has been another factor in keeping the markets subdued over the next few months. And in the meantime, glut continues to dominate. The US shale-oil sector has been confounding analysts and traders. US government forecasters expect domestic production to fall from its current levels of about 9.1 million barrels a day to 8.6 million barrels a day by mid-2016. Goldman Sachs Group Inc., in a note asserted: "A rapid drawdown of the observed backlog of uncompleted wells could (even) lead to higher production later this year and in 2016." There is also a resilience of production from countries such as Russia, Iraq and others. As per JODI data, crude exports from Saudi Arabia too rose from an average of 7.111 million bpd in September to 7.364 million bpd in October. The global oversupply issue has now become so acute that analysts at UK bank Barclays said it was possible daily surplus could "overwhelm" available storage capacity." While the oil market is expected to remain in surplus through 2016, the rate of stock builds is expected to slow, and there is enough onshore storage to contain it in our view," the bank said in a note. The 2016 crude outlook is increasingly turning bearish. The number of oil speculators buying options contracts that will only pay out if crude drops to as low as $15 a barrel next year is growing. This is the latest sign some investors expect an even deeper slump in energy prices. "We view the oversupply as continuing well into next year," Jeffrey Currie, head of commodities research at Goldman Sachs Group Inc., wrote in a note last Tuesday, adding there's a risk oil prices would fall to $20 a barrel to force production shutdowns if mild weather continues to damp demand. Russian President Vladimir Putin now believes, the $50 per barrel price for oil was too optimistic. "We had calculated next year's budget based on $50 per barrel. This is a very optimistic valuation today. Now it's already $38. That's why we will have to correct something there," Putin said at his annual news conference. "The quarter ahead looks a good deal more bearish than the quarter just ending," Ed Morse, head of commodities at Citigroup, told Bloomberg. Besides the storage problem, "the already oversupplied market now faces the imminent return of Iranian barrels," Morse added. Citigroup is calling for oil to fall "to the high $20s" if storage space runs out. "Overall it's still very bearish," Gareth Lewis-Davies, a London-based energy strategist at BNP Paribas SA, said. The emerging scenario is not healthy. Bears would continue to rule in the New Year too - one can't help underlining at this stage.
