Yesterday, March WTI crude closed down $1.22/bbl to $28.35, HO closed down $0.0430/gal to $.8657, and RBOB finished down $0.0085/gal to $1.0177. HO was trading down about 2 cents, but has rebounded and is now trading up about $0.0450. RBOB is up about $0.0250/gal.
Analysts and fundamentalists are comparing the current bearish oil market to trends in 1998, which was the last time oil prices trended down at the current levels, triggering Brent to fall below $10/bbl before recovering significantly. IEA supply and demand data comparing similarities between the two time periods suggest the possibility of once again falling to 1998 levels.
There are numerous similarities.
The market hit bottom precisely 2 years after the downtrend began in Q4, 1996. In July 2014 the market began to fall, and it is expected to keep falling until the two-year mark this July.
In 1998, the oil market experienced significant oversupply and a global stock build of 1.3 mbpd, very similar to what is projected in 2016. Both periods experienced huge increases in global oil stocks in prior years (700,000 bpd in 1997, 300,000 bpd in 1996, 1.8 mbpd in 2015 and 900,000 mbpd in 2014).
Despite comparable data, it is unlikely crude will hit $10/bbl. Adjusted for inflation, crude must hit $20.08 to match the 1998 low of $9.55. Any increase in Iranian production is unlikely to drive the market down further as it has already been anticipated and built into the price.
In the 5 years following the 1998 bottom oil prices climbed to $35 ($66 adjusted to 2016). However, 2020 is less likely to see this target price, as the current supply glut is greater than in the 1990s and an increase in Brent or WTI prices is expected to trigger increased U.S. shale oil production.