Oil Prices Plummet on Global Supply Glut and Weak World Economy

Oil prices slid further on Monday due to concerns that the global supply glut will extend into this year. Major brokerages, including Citigroup, have cut their oil price forecasts for 2015 and 2016, amid a weak world economy and increased US shale production. Edward Morse, head of commodities research at Citigroup, attributed the market weakness to three major factors: the US shale revolution, Saudi refusal to cede market share, and a weak world economy.

Oil prices have been volatile in recent days, with Brent crude for February delivery on London's ICE Futures exchange falling to $55.48 a barrel, its lowest since May 15, 2009. Nymex crude for February delivery on the New York Mercantile Exchange traded at $51.68 a barrel, down $1.01 from the previous session.

Key Takeaways:

Citigroup has lowered its average Brent crude oil forecast for 2015 to $63 a barrel from $80 a barrel, and its average Nymex crude oil forecast for 2015 to $55 a barrel from $72 a barrel, according to Edward Morse, head of commodities research at Citigroup.
The global supply glut is a major contributor to the oil price decline, with US shale production, Saudi refusal to cede market share, and a weak world economy exacerbating the issue.
Oil prices have been volatile in recent days due to thin trading volumes during the holiday season, as well as bearish news reports, including weak manufacturing data from China and disappointing economic data from the US.
Rising US oil inventories at a time of strong winter demand, and reports that Russian oil output has hit post-Soviet records while Iraqi oil exports are at their highest since the 1980s, have further weighed on oil prices.
Bernstein Research has also lowered its Brent crude-oil price forecasts to $80 a barrel for 2015 from $100 a barrel and to $90 a barrel for 2016 from $109 a barrel, but expects oil prices to return to triple digits by 2017 as US shale growth wanes.
The oil price decline has impacted gasoline and diesel prices, with Nymex reformulated gasoline blendstock for February falling 165 points to $1.4169 a gallon, and February diesel trading at $1.7793, 164 points lower.
The US nonfarm payrolls data due later this week will be closely watched, with Singapore-based Phillip Futures anticipating stronger-than-expected jobs data to boost the greenback and put further downward pressure on oil prices.

Statistics:

Nymex crude for February delivery traded at $51.68 a barrel, down $1.01 from the previous session.
Brent crude for February delivery on London's ICE Futures exchange fell $0.94 to $55.48 a barrel, its lowest since May 15, 2009.
Citigroup has lowered its average Brent crude oil forecast for 2015 to $63 a barrel from $80 a barrel.
Bernstein Research has lowered its Brent crude-oil price forecasts to $80 a barrel for 2015 from $100 a barrel.
Nymex reformulated gasoline blendstock for February fell 165 points to $1.4169 a gallon.
February diesel traded at $1.7793, 164 points lower.
ICE gasoil for January changed hands at $511.00 a metric ton, down $8.25 from Friday's settlement.

Sources:

Citigroup: "Oil and Trouble Ahead in 2015" (no date)
Edward Morse, head of commodities research at Citigroup
Neil Beveridge, senior analyst at Bernstein Research
Bernstein Research: no date
Phillip Futures: no date