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Oil prices slid yesterday, erasing early gains, as fresh signs of an oversupplied crude market trumped concerns about increased tensions in the Middle East.
Light, sweet crude for February delivery recently fell 41 cents, or 1.1%, to $36.63 a barrel on the New York Mercantile Exchange. Brent, the global benchmark, fell 20 cents, or 0.5%, to $37.08 a barrel on ICE Futures Europe.
Prices climbed earlier yesterday on concerns about increased tensions in the Middle East. Rallies fueled by geopolitical concerns in the past two years have quickly fizzled as traders have bet that robust global production and ample inventories would mute the effect of any production outage. Heightened global unrest and still-high oil output could stoke further volatility in oil prices in the coming weeks.
Brent prices fell 35% last year, their third straight annual loss, as a global supply glut showed few signs of abating. U.S. prices posted a second straight annual loss for the first time since 1998.
More than 18 months into the crude-price rout, oil production remains high around the world as producers compete for market share, keeping global inventories high.
Saudi Arabia’s execution of a dissident cleric on Saturday inflamed sectarian tensions, sparking some worry among traders that crude output in the world’s most prolific oil-producing region could be threatened. Saudi Arabia and several of its allies have severed or downgraded diplomatic ties with Iran.
Bahrain and Sudan have severed diplomatic ties with Iran in solidarity with Saudi Arabia. The United Arab Emirates has downgraded its diplomatic team.
Saudi Arabia produced 10.2 million barrels a day of crude oil in November, or about 11% of global output of crude and related liquids, according to the International Energy Agency. Iran produced 2.9 million barrels a day of crude that month.
Some oil analysts and investors have argued for months that the low price of crude doesn’t adequately account for a possible supply disruption due to violence or unrest. The oil market has been vulnerable to sharp rebounds in recent months as traders who had bet on lower prices quickly reverse course.
Money managers including hedge funds added to their bets that oil prices would fall in the week ended Dec. 22, according to the most recent data from the Commodity Futures Trading Commission. Increased concerns about geopolitical conflicts could have prompted some traders to close out their bearish bets.
But further tension between Saudi Arabia and Iran could also expand the global glut of crude oil, weighing on prices, analysts said, as the two producers compete for market share. Iran is expected to increase its output by hundreds of thousands of barrels a day this year if international sanctions on the country are lifted, and Saudi Arabia has already expressed its unwillingness to cut production to make room for Iranian barrels.
The heightened tensions with Saudi Arabia could encourage Iran to accelerate its production increases, analysts said.
“For the smaller and more cash-strapped countries, such as Iran, every barrel they place in the market counts because that’s how they can get hard currency,” said Virendra Chauhan, an analyst at consulting firm Energy Aspects.
United Nations (UN) Secretary-General, Ban Ki-Moon yesterday urged Saudi Arabia and Iran to avoid any actions that could further exacerbate the situation between the two countries and in the region.
Ban made the call in a telephone call he made to Mr Abel bin Al-Jubeir, the Foreign Minister of Saudi Arabia and Mr Mohammad Zarif, the Iranian Foreign Minister.
According to a readout to UN correspondents in New York, Ban stressed the importance of continued constructive engagement by both countries in the interest of the region and beyond.
In his conversation with the Iranian foreign minister, Ban recalled his statement on the execution of Sheikh al-Nimr and 46 other prisoners by Saudi Arabia on Saturday.
He further recalled his condemnation of the attack at the Saudi embassy in Tehran and urged the foreign minister to take the necessary measures to protect diplomatic facilities in the country.
Speaking with the Saudi Foreign Minister Al-Jubeir, the secretary-general reiterated his views on capital punishment and his disappointment over the execution of al-Nimr, whose case he said was raised by the Saudi authorities on several occasions.
The secretary-general reiterated that the attack on the Saudi Embassy in Tehran was deplorable.
Ban said that the announcement of a break in Saudi diplomatic relations with Tehran was deeply worrying.
Regarding Yemen, the UN scribe urged Saudi Arabia to renew its commitment to a ceasefire.
THE NATION