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3 charts on why oil could head lower in 2016

Lawrence Lewitinn
Lawrence Lewitinn

Oil is trading at its lowest levels in over 6 years. And according to one portfolio manager, crude prices have a lot more downside ahead.

OPEC oil production for December was at 31.7 million barrels per day and the cartel recently voted to raise its production ceiling to 31.5 million barrels per day. “That’s at pretty much an all-time high,” said Chad Morganlander, portfolio manager at Stifel Nicolaus’ Washington Crossing Advisors.

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Brent Crude’s (BZF16.NYM) nearest-term contract traded just under $40 per barrel on Thursday while in the futures market, barrels for delivery in January 2017 were trading close to $49. But Morganlander expects oil prices will experience “lower lows over the course of the next 18 to 24 months.”

A catalyst for lower oil demand will be a slowdown in emerging markets, particularly China, predicted Morganlander. China consumes about 12% of the world’s crude.

“Global growth is decelerating,” he said, adding that most global growth comes from emerging economies, with roughly a quarter coming from China. “The Chinese government is going to continue to decelerate their economy, which means lower demand for consumption of oil as well as all commodities."

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