Oil options lurch closer to $20 Goldman doomsday forecast

07-Jan-2016

When U.S. investment bank Goldman Sachs said last year that oil could fall as low as $20 per barrel, it assigned a fairly low probability to that scenario.

Fast-forward five months and in some parts of the world the forecast has already proved correct. Canadian physical crude has been selling this week at below $20 per barrel, less than it costs to extract and transport. Traders in the options market, meanwhile, are taking protection against prices falling below $25.

The developments reflect growing concerns that a market already awash in too much oil is now suffering the double-whammy of a sharp slowdown in U.S. and Chinese demand.

For the past 18 months, oversupply has been the main factor responsible for dragging down prices by two-thirds, after Saudi Arabia pushed OPEC to ramp up exports to fight for market share with higher-cost producers such as U.S. shale firms.

Low prices spurred global demand to multi-year highs, saving oil from a further collapse and encouraging producers to hope that the market might recover later in 2016.

But just as Saudi Arabia was about to start celebrating its first tactical victories, with U.S. output declining under pressure from low prices, signs are emerging that demand in the United States, China and Europe is much weaker than anticipated. (by DMITRY ZHDANNIKOV, Reuters) 

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