When U.S. investment bank Goldman Sachs said last year that oil could fall as low as $20 per barrel, it assigned a fairly low probability to that scenario.
Fast-forward five months and in some parts of the world the forecast has already proved correct. Canadian physical crude has been selling this week at below $20 per barrel, less than it costs to extract and transport. Traders in the options market, meanwhile, are taking protection against prices falling below $25.
The developments reflect growing concerns that a market already awash in too much oil is now suffering the double-whammy of a sharp slowdown in U.S. and Chinese demand.
For the past 18 months, oversupply has been the main factor responsible for dragging down prices by two-thirds, after Saudi Arabia pushed OPEC to ramp up exports to fight for market share with higher-cost producers such as U.S. shale firms.
Low prices spurred global demand to multi-year highs, saving oil from a further collapse and encouraging producers to hope that the market might recover later in 2016.
But just as Saudi Arabia was about to start celebrating its first tactical victories, with U.S. output declining under pressure from low prices, signs are emerging that demand in the United States, China and Europe is much weaker than anticipated.
Estimated demand from China, the world's second largest consumer and the engine of global economic growth since the commodities boom started in the early 2000s, fell in both September and November, compared to the same months of 2014.
U.S. demand, the world's largest, began falling from October, according to the latest available data, despite low gasoline prices, while U.S. distillate demand slid to its lowest for more than a decade towards the end of 2015.
Demand in the European Union turned flat in October, having surprised on the upside throughout most of the year.
"2015 started off with a spectacular growth in demand. But in the last quarter of 2015, things seem to have changed," said Abhishek Deshpande
, an analyst at banking and investment group Natixis.
Goldman's drastic scenario was based on the logic that the market might have to undergo a $20 per barrel price shock in order to force an acceleration in the shutdown of unprofitable production.
That no longer seems fanciful.
"Oil has been under pressure as of late, and downside risks of a dip into the $20s have grown," Bank of America Merrill Lynch said on Thursday.
The same day, Brent and WTI futures fell briefly to their lowest levels since 2004, near $32 per barrel, as a sliding yuan and an emergency halt in Chinese stockmarket trading left Asian markets in turmoil.
For oil prices to fall as much as 5 percent in early and usually calm Asian trading hours is very rare, and even veteran chart-watchers are now struggling to draw a line under the biggest rout in decades.
"The supports are crumbling... There is not a winning long in the market - maximum pain is lower. It is not advised to be long," said Robin Bieber
of brokers PVM.
He said there would not be much to stop oil falling into the mid-$20s if WTI crude fell below the $32.40 a barrel support level. Minutes later, WTI fell as low as $32.10, although prices slightly recovered towards $34 per barrel later in the day.
Over the past year, the world has been producing 1.5 million bpd more oil than it consumes. OPEC and the International Energy Agency expect global demand growth to slow in 2016 to around 1.20-1.25 million barrels per day from a very high 1.8 million bpd in 2015.
That means that for most of 2016 the world will still be producing more than it can consume, adding to record stockpiles already exceeding 3 billion barrels.
The options market is showing that fears are indeed on the rise that futures could fall further. The Chicago Board Options Exchange's oil volatility index has risen 20 percent so far this year.
Implied volatility in ICE Brent options - including the $30/barrel and $25/barrel Feb 16 option - has spiked in recent weeks. Some investors are protecting themselves by acquiring put options giving them the right to sell at $25, anticipating that Brent will fall below that.
"There has been more interest in buying options like $25 puts and open interest has increased. Volatility has been rallying. The action that we have seen shows that people have a bearish slant," said a senior options trader
at a major bank.
But while the futures market is only preparing for a dip below $30 per barrel, prices in the physical markets - where oil producers sell and refiners buy actual barrels - have already fallen much further.
The price of an OPEC basket of 13 crude grades fell to $29.71 a barrel on Wednesday, according to calculations from the cartel.
Most shocking was the outright price of Canadian heavy crude, which dropped below $20 a barrel.
Northern Alberta's vast oil sands hold the world's third-largest crude reserves but carry some of the highest production costs globally -- up to $50 a barrel -- because of the energy-intensive production process.
Most Canadian and U.S. companies will likely keep producing to pay bills and loans, even if the crude price does not cover cash operating costs such as extraction, blending and transportation.
"There is a high risk a lot of these companies could fold, but really speaking we are looking at more consolidation and potential restructuring," Natixis analyst Deshpande said.
(By Dmitry Zhdannikov; Additional reporting by Christopher Johnson; Editing by Mark Trevelyan)