Oil prices have been a source of great concern for capital markets, yet should we be worried?
After all, the imbalances between supply and demand are neither extreme nor persistent plus market forces should start to move the market closer to equilibrium by mid-2016. That ought to provide fundamental support for crude prices, paving the way for a reversion toward a more sustainable price equilibrium above $60 a barrel in 2017.
On top of that, the current oversupply level of 1.5-2.0 million barrels a day (mb/d) is not that large, especially in the light of virtually zero spare capacity. And China's thirst for oil is unlikely to slow down materially in 2016. The country's economic slowdown is often cited as the reason for the price correction, yet car sales there have surged in recent months and gasoline demand rose by 11 percent in China during 2015.
The slide in oil prices may not be over yet though. The lifting of sanctions on Iran threatens to swamp an already oil-laden market with more supply at a time when seasonal refining maintenance will dampen demand in the first quarter.