Crude markets are sinking. Two weeks into 2016 and it has lost almost 17 percent. Markets are concerned! Iran could only be days away from being integrated fully into the energy markets. Within six months of the lifting of sanctions, Iran wants to increase its exports by 1 million bpd, and in the meantime, its exports are already targeting to hit a nine-month high in January, with 1.10 million bpd of crude, excluding condensate, to load. Any additional oil would definitely add to the glut. Barclays said it had raised its estimates of Iranian oil supply once sanctions are lifted. Analysts at the bank said they now assume that Iran will produce almost 700,000 barrels a day more in the fourth quarter of 2016 than over the same period in 2015. This has resulted in lowering their forecast for the average price of Brent and WTI in 2016 — to $37 a barrel this year, down from $60 and $56 previously. "This could drive prices down further in the short term purely on the basis of the psychological effect," analysts at Commerzbank have been underlining in recent days. "Most of the bearishness is coming from worries over Iranian sanctions being lifted," said Daniel Ang, an analyst with Phillip Futures. "I won't be surprised if prices continue falling toward $25 per barrel." "With no apparent signs of strengthening demand, and only further indicators of future global supply growth, the outlook for oil prices is leading most market watchers to ratchet down estimates for oil prices in 2016 and 2017," analysts at Cenkos Natural Resources said. "In the very short term, another price drop cannot be excluded in particular after sanctions against Iran are lifted," Commerzbank analyst Carsten Fritch told Reuters Global Oil Forum. "That means a drop toward $25 is quite possible, but not much lower than that." Commerzbank hence cut its 2016 forecast for oil prices, changing its year-end expectation for Brent to be at $50 – than $63 – as forecasted earlier. Japanese holding company Nomura has also revised lower it price forecast for Brent to an average of $40 a barrel this year from $55. Wall Street investment bank Morgan Stanley said last week that WTI will fall to $20 as the US dollar strengthens. That call was bullish compared to the one made by RBS for oil to hit $16 a barrel. Standard Chartered is suggesting oil prices to "fall to as low as $10" before the sell-off "had gone too far." A few analysts however, are taking the line that Iran's return would have a muted effect, as it was already priced in by the markets. "The lifting of the sanctions has been widely expected and it is difficult to say that it is not yet priced in Brent at $30 a barrel," said Olivier Jakobof Swiss-based consultancy Petromatrix. US bank Goldman Sachs is also maintaining its $40 price forecast for US crude for the first half of 2016. In the meantime, factors other than Iran are also coming into play. Dashing the hopes of any urgent recovery in oil markets is the emerging issue of dwindling crude storage capacity - worldwide. Global inventories are at record highs, the Paris based IEA says. On the other hand, despite some slowing down in US shale output, it continues to show resilience. Stocks hence are rising. As per an EIA report last week, US gasoline stocks surged by 8.4 million barrels, while distillates stock jumped by 6.1 million barrels. The EIA underlines US stocks would rise by 700,000 bpd before beginning to balance out, somewhere, in 2017. If the growth in US output, as projected by the EIA, is added to the storage at Cushing, Oklahoma, the pressure on storage is on up. Storage at Cushing is already touching the record high level of 64 million barrels as compared to its maximum capacity of 73 million barrels. Brian Busch of Genscape, an industry data gatherer, says it's a similar story in China, with ships carrying oil spotted waiting at anchor out at sea because storage tanks appeared to be full. And in the midst of all this, demand is caving in too. "You have a situation where emerging markets in general are extremely weak, that in turn is causing commodity prices to decline rapidly, including oil prices, so rather than saying lower oil prices are a stimulus for the commodity consuming parts of the world, I think you should see lower oil prices as a symptom of weakness in global demand," HSBC's senior economic advisor Stephen King told CNBC. Slumping prices are a critical signal that the boom in lending in China is "unwinding," Adair Turner, chairman of the Institute for New Economic Thinking. Slowing investment and construction in China, the world's biggest energy user, is "sending an enormous deflationary impetus through to the world, and that is a significant part of what's happening in this oil-price collapse," Turner, former chairman of the UK Financial Services Authority, said in an interview with Bloomberg Television. The nation's economic expansion faltered last year to the slowest pace in a quarter of a century. Concern over slowdown in China's economic activity is weighing heavily on crude sentiments. "The global glut issue has been around for a while. Right now, it is the fear of a Chinese slowdown that is spooking the market," said Barnabas Gan, a commodity analyst at OCBC. A Reuters report points out that purchases of oil by China had already begun to fall in November 2015, the last month for which data is available. In a note, Barclays said that implied oil demand (in China) had fallen 4.7 percent month-on-month in November, or 2 per cent compared to the same month in 2014. The bank expects further declines this year. Citigroup too believes prices could temporarily drop into the $20s before moving higher. "There's not great oil demand, available data points. China macro concerns and to some degree the continued strength of the US dollar have been providing headwinds for the oil markets. The supply side is still very resilient. Demand is not great and inventories are likely to keep getting quite a bit higher, analysts were quoted as saying BRICS also doesn't seem to be doing well. Brazil, formerly described as a champion of the global south, is now reeling because of its challenged economy – made worse by a corruption scandal centered on its oil giant Petrobas. IMF chief Christine Lagarde is hence pointing to the "new reality" of slow growth and worrying uncertainty. A new era seems dawning. Markets are entering a new, slower, phase of economic cycle. Crude is no exception!
