Oil in $20s a risk as Citigroup sees crude storage tanks fill up

Prices would need to fall low enough to force some production to be halted if supplies overwhelm storage capacity, a scenario that looks set to be tested in the first half of next year, the bank said in a report.

That would require West Texas Intermediate crude, the American benchmark, to slump “to the high $20s” from about $37 currently, the bank said. Brent, the global marker, would need to decline to about $30.

Global oil markets are already oversupplied as a result of the boom in U.S. output and the Organization of Petroleum Exporting Countries’ refusal to curb its own production.

Brent and WTI slumped to the lowest price in more than six years this week and Citigroup predicts that markets will face further pressure next year as Iran revives exports with the end of international sanctions.

“The quarter ahead looks a good deal more bearish than the quarter just ending,” New York-based managing director Ed Morse said in the report.

“The already oversupplied market now faces the imminent return of Iranian barrels and onshore storage capacity constraints look set to be tested in the first half.”

International sanctions could be lifted on Iranian crude as early as January with the completion of the accord on the country’s nuclear program, Morse said.

The OPEC member “appears to be returning to the market a lot sooner than had been forecast,” he said.

Iranian supply “could even hit the market as or before winter demand peaks” and as demand from refiners tails off during their seasonal maintenance period, he said.

The bank maintained forecasts for average prices in 2016 of $51 a barrel for Brent and $48 for WTI.