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Crude prices reach 7-year low, downside pressure remains

Xinhua, December 9, 2015 Adjust font size:

As oil prices reached seven-year lows on Tuesday amid concerns of global supply glut, analysts expected oil prices to remain low for even longer.

Market selloff came Monday after Friday's Organization of the Petroleum Exporting Countries (OPEC) meeting decided to keep crude production at current level in an already oversupplied market.

The 13-member OPEC currently produces about 31.5 million barrels a day and has refused to cut its output, which made traders worry that the prolonged supply glut would continue to drag the oil market down.

Iranian Oil Minister Bijan Namdar Zanganeh said Friday that the crude market is oversupplied by 2 million barrels a day, adding that the country planned to increase exports by 1 million barrels a day after sanctions are lifted.

Goldman Sachs analyst Damien Courvalin projected OPEC's production in 2016 will remain modestly above the current level, at 31.8 million barrels per day, while that of Iraq will be slightly below its current level and Iran will see a modest growth in output.

The bank suggested that oil prices could be near 40 U.S. dollars per barrel, or roughly the current trading price, the bank predicted a worst scenario where prices could hit 20 dollars per barrel.

The company added that the supply-demand balance in global oil market won't be restored until the fourth quarter of 2016 due to the high surplus at the starting point, resilient non-OPEC supply, and slightly weaker yet still robust demand growth.

Francisco Blanch, head of Commodities Research at Merrill Lynch, said Tuesday that a strong U.S. dollar and restrained global growth could create downward near-term pressures on commodity prices.

He predicted that oil balances are set to improve in the second half of 2016, with the combination of global demand and lower non-OPEC output potentially pushing crude oil back up to 55 dollars per barrel.

U.S. crude oil production is forecast to decrease through the third quarter of 2016, according to the energy outlook released Tuesday by U.S Energy Information Administration (EIA).

The EIA projected that the U.S. crude oil production will average 9.3 million barrels per day in 2015 and 8.8 million barrels per day in 2016.

In addition, the agency forecast that Brent crude oil prices will average at 53 dollars per barrel in 2015 and 56 dollars per barrel in 2016, while West Texas Intermediate (WTI) crude oil prices could average 49 dollars per barrel in 2015 and 51 dollars per barrel in 2016. Endi