1. Iran as a catalyst
Major producers continue to pump at high levels, and demand continues to lag. U.S. shale producers have more resilience than expected, and the U.S. is still producing about 9 million barrels a day.
But it's Iran's oil production that some analysts say the market may not be pricing correctly. They also say Iran may be making blustery assertions about its oil production that it will not be able to meet.
The U.S. and five other nations agreed in July to lift sanctions against Iran in return for curbs on its nuclear program, and this past Sunday the agreement was formalized based on Iran's meeting its commitments to the deal.
An Iranian official this week said the country has already secured buyers from Europe and Asia for more than 500,000 barrels a day in new exports once sanctions are lifted. The final assessment by the International Atomic Energy Agency is expected to be completed by Dec. 15.
"If they put that marginal barrel onto the market, there's going to be a price impact from it. The Saudis have taken a lot of their market share from Europe in the last couple of years," said Michael Cohen, head of energy commodities research at Barclays. "It's going to be a fine balance. I wouldn't be surprised at the end of 2016 if we look back at the end of the last year and be surprised that they put only 400,000 to 500,000 barrels back on the market, not 800,000 to 900,000 barrels."
Iran has been producing about 2.8 million barrels a day, from a high of 4.2 million barrels, according to Andrew Lipow of Lipow Oil Associates. "It would surprise me to see 500,000 a day come out onto the market within a couple of months," he said. "The market takes what they say with a grain of salt. We do know that they are going to be exporting the first minute they can."
It could be the start of Iran's oil returning to market that sends oil prices back to the lows, said Citigroup's Morse. He said the oil market could hit bottom late this year or in the first quarter, but he does not expect Tehran to be able to quickly push the volume of new oil that it is promising.
"These shut-in wells have been building pressure. They can surge production beyond what is sustainable, and if they want to show the world they are there, which is highly likely, that is possible," he said. Morse said he expects Iran could produce 300,000 to 500,000 barrels a day more within a half year of sanctions being lifted.
Iran also has about 40 million barrels of condensates in floating storage. "I just think the market has underestimated how much oil could come back on the market immediately upon having sanctions released," Lipow said.
2. Inventories bulging
A second thorny issue for the market is buildup of inventories. U.S. government data Wednesday showed an 8 million barrel surge in crude stocks last week, with a record high 247.2 million barrels now stockpiled in the Gulf Coast alone.
Analysts are also watching the buildup of refined products, which will only increase when refinery maintenance season ends in the next couple of weeks.
"Crude builds will probably turn into small draws but what it means is this big surplus of crude oil will turn into a surplus of gasoline," said Tom Kloza, global head of energy analysis at Oil Price Information Service. "It's going to be a problem with too much gasoline and too much diesel, particularly on the east coast but the Gulf Coast as well."
Barclays, in a report, said that global refinery runs grew faster than demand by about 57 percent during the second and third quarter. That created a buildup, pushing refined products into storage in offshore tankers.
Refining capacity has been added around the globe. Saudi Arabia, for instance, shipped less crude in August but more refined oil products. According to JODI data, Saudi Arabia exported 1.3 million barrels a day of refined product, compared to 1.1 million barrels the month earlier.
The U.S. has also increased refined-product exports as well and is a net exporter of more than 2 million barrels a day. Barclays expects the rate of build in refined products to slow.
"Fundamentally speaking, we remain in an oversupply situation, and refining margins are weak and likely to get weaker, especially in distillates, and the stocks remain at high levels," said Cohen. "So any sustained price move to the upside is going to be met with skepticism by the market, and that's why we continue to maintain our range bound price forecast at least until the third quarter of next year."
3. U.S. shale gale
A third bearish factor for oil has been, and continues to be, the resilience of the U.S. oil industry. Saudi Arabia and OPEC vowed last fall to continue producing and to allow the market to set prices in an oversupplied world, a factor they were hoping would curb non-OPEC production.
But U.S. production, despite shut-in rigs, has not fallen that much. Analysts had been expecting some companies to lose some funding in bank redeterminations this month, but it seems the industry is doing better than expected, and the impact is relatively minor.
"We think for WTI there's downside risk for the first quarter based on the fact we think U.S. production may not roll over like people think," said Cohen. "We need to see prices go lower as a disincentive."
Analysts now expect the companies facing lending reviews to have a difficult time in the spring after more months of low oil prices. The U.S. industry is made up of so many companies drilling so many unconventional wells that the trigger of falling prices is not an automatic one, since producers are profitable at all different levels.
"High-yield companies are well-hedged through the first quarter, and then their hedges go off, and it's not clear they have the cash flow to keep drilling," said Morse.
Cohen said the pressure from a long period of low prices will pinch companies. "U.S. production is likely to be lower," he said, adding the hit to shale producers will be worse next year after several more quarters. "It will be worse, not just for those that have their borrowing base redetermined."