Crude has already dropped to $30 a barrel but it is still far from hitting rock bottom. Analysts and traders predict $20 per barrel which is highly possible due to speculation in stocks and the strengthening dollar.

The Russian Energy Ministry so far expects $30 a barrel. In December 2015, the ministry asked Russia�s biggest oil producers to�carry out $30 stress tests. Their results have not been made public but�statements from�company representatives and analysts show that $30 is not critical and companies are ready to�withstand even lower prices.

Rosneft, Russia�s biggest oil company, has a scenario worked out�for $30 a barrel, company spokesperson Mikhail Leontiev told�RBK. According to�him, even if oil drops to $30 the company will continue to�develop its offshore projects. What is more, a source in�Rosneft told RBK that Russian oil producers have no need to�change their investment and operation plans if Brent keeps at $25 or higher.

Taking into�account the fact that for�major Russian oil companies production costs are relatively low, the further drop in�oil prices would not prevent them from�keeping or even expanding their shares in�the market.
What is more, Russian oil producers are capable of�withstanding the low prices, Bank of�America analysts said. According to�their November report, the majority of�Russian oil companies can earn profits at $30 a barrel, while for�Rosneft and Bashneft the threshold is $20 or lower.


Low oil prices hurt the federal budget more than�oil producers. According to�Russian Deputy Prime Minister Arkady Dvorkovich, the Russian fiscal system presumes that the budget, not oil companies, bears the risks of�falling oil incomes.

According to�analysts, none of�Russia�s oil companies is likely to�declare a default.
"The majority of�the currently operational projects provides necessary cash flows, taking into�account that taxes are lower with�falling oil prices," Anton Rubtsov, Business Development Director at�VYGON Consulting, was quoted as�saying by�RBK.


Since the beginning of�2016, global oil prices have tumbled by�15 percent and were close to $30 a barrel on�Tuesday, a price seen impossible year-and-a-half ago.

In addition to�the oil market glut which is expected to�persist in�2016, technical factors like�stock speculations and the strengthening dollar are playing against�oil.

According to�Morgan Stanley analysts, the downward trend in�the oil market is now driven by�the dollar rates and other technical factors. As a result, the outlook is that crude is likely to�cheapen further, possibly to $20 a barrel.
The US market predicts that crude would drop to $20 or even $15 a barrel, according to�data from�the NYMEX. For instance, on�January 11, the number of $20 options for�crude increased by�333 against�January 8, to�3,101 (3.1 million barrels). The holders will earn a profit of�the contracts if the market price drops below $20 in�2016.

In addition, 689 positions (689,000 barrels) were opened in $15 put options. So far, this is a negligible quantity but�it is gradually rising.

In turn, the number of�positions in $20 put options for�Brent due to�mature until�December 2016 has risen by�more than�700 percent since�the beginning of�the year, Reuters reported.

Another important factor is the record high number of�speculative short positions on�ICE and NYMEX. According to�the CFTC and ICE, between�the beginning of�the year and January 5, traders increased the number of�short positions by�15 million barrels, to�363 million. This is a signal that hedge funds expect oil prices to�continue to�fall.

Finally, the strengthening US dollar has also contributed to�the falling oil prices. Since oil is traded in�dollars the strengthening of�the dollar makes oil more expensive for�buyers using any other currency. As oil prices go up�demand shrinks, RBK explained.

The US dollar index has risen more than�20 percent since�mid-2014 as�a relatively robust US economy attracted investments from�other regions, according to�Reuters. In the last years, the dollar index increased by�eight percent. The Federal Reserve�s increase of�US interest rates in�December and the prospects for�yuan devaluation has also helped the greenback go up.
Recently, the rising dollar has become the main factor contributing to�the oil prices fall, Morgan Stanley analysts pointed out. The drop from $100 to $60 a barrel was a result of�the glut in�the global market while the drop from $55 to $35 was provoked by�the dollar factor.


Earlier this week, several banks including Barclays, Macquarie, Bank of�America Merrill Lynch, Standard Chartered, and Societe General downgraded their outlooks for�oil prices in�2016. Morgan Stanley reported that Brent is likely to�drop to $20 a barrel while Standard Chartered predicted a drop to $10.

A price of $20 and even lower has become real, especially taking into�account not the WTI and Brent benchmarks but�low grades traded with�a discount. For instance, Western Canada Select is currently $16.6 a barrel, according to�Bloomberg, and Iran�s Basrah Heavy sold to�Asia for $18.7 a barrel and for $20-21 to�the US and Europe. On January 12, the OPEC oil basket comprising 13 crude grades was $27.07 per barrel.
By Sputnik