Crude dipped below $40 a barrel this week and traders are warning that a new round of low prices could be here to stay, at least for a while. Oil is emerging as, possibly, one of 2016's biggest financial risks. David Pollard reports.
Scan the horizon for risk and some say a liquidity crunch is possible in 2016. Or central banks not doing enough to boost a not-so-vibrant economy. Others see rigs like these - pumping more oil into, already, one of the biggest supply gluts ever. Prices in danger of slipping to new lows after dropping below a key $40 dollars a barrel threshold. IG's Alastair McCaig. (SOUNDBITE) (English) IG MARKET ANALYST, ALASTAIR MCCAIG, SAYING: "This could be a price range and area that oil traders need to get increasingly used to, as OPEC and primarily the Saudi oil minister's efforts to drive down oil prices and keep them at these subjective lows has, for the time being on the back of the latest Vienna meeting, garnered support, as fragile as that may be." Prices down 65 per cent since the middle of last year translates to a trillion dollars wiped off oil stocks. Nearly 2 trillion of debt in danger of downgrades and defaults. And Russia, Brazil, Nigeria and others seeing their currencies plummet along with falling revenues. Last week, OPEC failed to agree a new production ceiling. No sign of a let-up in Saudi Arabia's dominant agenda of low prices to render more expensive producers - like US shale - less competitive. Richard Mallinson of Energy Aspects. (SOUNDBITE) (English) RICHARD MALLINSON, GEOPOLITICAL ANALYST, ENERGY ASPECTS, SAYING: "I don't think we're going to see that anytime in the next few months. I think we're going to see prices remain low, but the Saudis are going to hold course for now." How low can they go? One scenario, put forward by Goldman Sachs, is of a mild winter, low emerging market growth and sanctions lifted against Iran. Boosting supply even more. With prices cut to as little as $20 a barrel - half where they are now.