Crude futures Monday settled below $32/b for the first time 12 years, dragged down by more weak economic data out of China and the imminent return of Iranian exports to the market.

NYMEX February crude settled $1.75 lower at $31.41/b and ICE February Brent settled down $2 at $31.55/b. Front-month NYMEX crude was last lower in December 2003, while prompt ICE Brent was last lower in April 2004.

Refined products fell with the crude contracts, brushing off a number of refinery upsets across the country Monday. NYMEX February RBOB settled 1.47 cents lower at $1.1130/gal, while ULSD fell 3.72 cents to settle at $1.0149/gal.

Over the weekend, concerns about deflationary pressures and weakening economic growth in China were highlighted when the National Bureau of Statistics released data Saturday showing the the Producer Price Index, which tracks companies' factory prices, declined by 5.9% year on year in December and 0.6% from November. The consumer price index underwhelmed, growing by just 0.1% to 1.6% year on year.

"There are concerns that demand could be affected by the slowing economic conditions in China," Gene McGillian, senior analyst at Tradition Energy, said.

Reflecting the heightening concerns related to China's economic health, Chinese equities shed significant value Monday. The Shenzhen Composite Index fell by 6.6% Monday, while the Shanghai Composite Index lost 5.33%.

"Although oil traders weren't counting on any improvement in China, the view that even 6.5% growth will be difficult to achieve over the next few years has translated into a 5.3% drop in the Shanghai Composite Index, triggering a further decline across a range of industrial commodities," Tim Evans, energy futures specialist at Citi Futures, said.

On Monday, Morgan Stanley issued a note raising the possibility of $20/b crude owing to the increasing value of the US dollar, rather than supply and demand dynamics.

"It's not about deteriorating fundamentals: The USD and non-fundamental factors continue to drive oil prices... Oversupply may have pushed oil prices under $60, but the difference between $35 oil and $55 oil is primarily the USD, in our view," the Morgan Stanley analysts said in a note Monday. "Given the continued USD appreciation, $20-25 oil price scenarios are possible simply due to currency."

Morgan Stanley estimates that a 1% change in the value of the trade-weighted US dollar causes a 2%-4% move in the opposite direction in Brent crude prices.

Societe Generale analysts Monday slashed their short-term outlook for crude prices. ICE Brent will average $42.50/b in 2016, revised downward $11.25, while NYMEX crude will average $40.50/b in 2016, revised downward $9.25, Societe Generale said.

"The key reasons for the downward revisions to our price forecast are OPEC's formal elimination of a production target, the earlier return of Iran than previously expected, and continued resilience in US crude production," the bank said in a note explaining the revisions. "In addition, the recent reemergence of strong fears of a hard landing in China and other emerging markets has been taken into account, particularly in Q1 2016."

On Thursday, US Secretary of State John Kerry said that the implementation of the Iranian nuclear deal, and the subsequent lifting of sanctions was "days away."

With continued concerns on China's oil demand and Iran's return to the market, analysts stressed that further declines in crude prices were likely.

"We don't really have any positive points on the horizon and the market will continue to look for a bottom," McGillian said.

Sources said that front-month RBOB and ULSD futures were dragged down by falling crude prices, rather than any particular events in each market.

On Monday, a number of refinery upsets were reported across the US, including at least a partial shutdown at the 336,000 b/d Phillips 66 refinery in Wood River, Illinois, and a fire at Marathon's 451,000 b/d refinery in Galveston Bay, Texas.

--Jack Laursen, jack.laursen@platts.com
--Edited by Richard Rubin, richard.rubin@platts.com

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