A Kuwaiti stock trader monitors the stock market activity at the Kuwait Stock Exchange (KSE) yesterday on the last trading day of 2015. Stock markets in the energy-rich Gulf states ended 2015 in negative territory impacted by a massive decline in oil prices and regional turmoil.

LONDON: Oil prices headed for a second year of steep losses in their last trading hours of 2015 as record OPEC supply created an unprecedented global glut that may take another year to clear.

US West Texas Intermediate (WTI) crude futures traded 10 cents lower at $36.50 a barrel at 1221 GMT yesterday and Brent was 4 cents lower at $36.42 a barrel. Brent prices were set for a third year of declines after ending 2013 slightly lower and falling sharply over the past two years.

Prices fell 3 percent on Wednesday as crude inventories in the United States rose 2.6 million barrels last week, the US Energy Information Administration said, echoing high stocks in Europe and Asia. "We have brimming oil inventories in Europe. And our predictions are that oil inventories in Asia are going to get closer to saturation in the first quarter. Which means that most of the global surplus will have to be stored in still available storage capacity in the United States," Bjarne Schieldrop, chief commodity analyst at SEB in Oslo, said.

The immediate outlook for oil prices remains bleak. Goldman Sachs has said prices as low as $20 per barrel might be necessary to push enough production out of business and allow a rebalancing of the market.

Morgan Stanley said in its outlook for next year that "headwinds (are) growing for 2016 oil." The bank cited ongoing increases in available global supplies, despite some cuts by US shale drillers in particular, as well as a slowdown in demand, as the main reasons. "The hope for a rebalancing in 2016 continues to suffer serious setbacks," the bank said.

Traders expect some US oil to be supplied into global markets, following the surprise lifting of a decades-old US crude export ban in December, which ended a years-old discount in US crude prices to international Brent.

"At a time when US shale is facing headwinds due to the collapse in crude oil prices... US crude oil exports are likely to help reduce congestion concerns in the US," ING bank said.

INDUSTRY PAIN

Brent prices briefly fell below $36 per barrel this year, effectively wiping out the gains from a decade-long commodity super-cycle sparked by China's unprecedented energy demand boom.

The downturn has caused pain across the energy supply chain, including shippers, private oil drillers and oil-dependent countries from Venezuela and Russia to the Middle East.

Analysts estimate global crude production exceeds demand by anywhere between half a million and 2 million barrels every day. This means that even the most aggressive estimates of expected US production cuts of 500,000 bpd for 2016 would be unlikely to fully rebalance the market. Oil began falling in mid-2014 as surging output from the Organization of the Petroleum Exporting Countries (OPEC), Russia and US shale producers outpaced demand. The downturn accelerated at the end of 2014 after a Saudi-led OPEC decision to keep production high to defend global market share rather than cut output to support prices.

OPEC failed to agree on any production targets at its Dec. 4 meeting in Vienna, cementing its decision to protect market share, as the organization braces for the return of Iranian exports to the market after the lifting of western sanctions. Russia and OPEC show no signs of reining in production, leading traders to establish record high active short positions in the market that would profit from further crude price falls. - Reuters