As Crude Drops 3%, Consultant Predicts a Bottom of the $30s With Real Demand Not Occurring Until 2017 or Later

Crude benchmarks Monday were down over 3 percent

Experts who last week predicted that oil prices would inevitably drop due to fundamentals were proven correct on Monday as crude futures fell over 3 percent, with Bent settling at $49.16 and West Texas Intermediate downto $47.05 per barrel.

Increased exports from Iraq and Nigeria as well as U.S. companies continuing to put rigs back into production were cited as reasons for the drop, but traders also pointed to increasing Chinese fuel exports as another factor.

China exports of diesel and gasoline soared in July by 1.53 million tons and 970,000 tons respectively compared to the same month last year.

As for Iraq, it plans to increase exports of Kirkuk crude by 150,000 barrels per day (bpd) this week, and Nigeria's anticipated rebound comes in the form of militants reportedly agreeing to a ceasefire.

Looking back, Morgan Stanley says positioning data confirms its view that the price surge of earlier this month was "more technical and positioning-oriented than fundamental; in fact, new buyers have been mostly absent the past few months."

Given the increase in crude output and the persistent global oversupply, Barclays believes the $50 threshold achieved and in some cases exceeded last week is unsustainable, and that "Oil prices will likely experience another short-term dip in the coming weeks."

Kyle Cooper, a consultant with Ion Energy Group, offers a darker view of things to come: he told CNBC the real problem is that U.S. petroleum inventories have built at the same pace as last year, which was a record bearish trend, and unless this is resolved oil will drop later this year to "the mid $30s", with "real demand not kicking in until 2017 or even `18."

Cooper added that it would take something of the magnitude of the Organization of the Petroleum Exporting Countries to agree to a severe production cutback, which he believes is out of the question due to Saudi Arabia and Iran unwilling to give up market share.

For his part, Andy Lipow, president of Lipow Associates, believes over the next several months "the oil market will act more like the movie "Groundhog Day" where the star, and now the oil market, is caught in a time loop; he pegs 2018 as the year oil might rise to $60.

Last week at the height of the oil rally, John Kilduff, founding partner of Again Capital, agreed that the market would eventually improve, but not before taking another hit: "We're probably going to touch $50. I think we're going to ring the bell before we can head back down.

"I think we're going to go back down to at least $40 and possibly the mid $30s."