Oil markets struggle again as traders wait for Iran production
Crude oil fell to a fresh low yesterday, as markets braced for Iran to bring even more supply to an already flooded market.
Brent Crude - the global benchmark - fell below $28 a barrel for the first time since November 2003 before closing at $28.69. Its US equivalent - West Texas Intermediate - remained below the $30 level.
The already tumbling market faces a new wave of supply after Iran said it would increase production by as much as 500,000 barrels per day after the US lifted sanctions on that country over the weekend.
Saudi oil minister Ali al-Naimi meanwhile dismissed concerns about oil prices and maintained that prices would recover over the long term.
"There is no more 'if' about Iran coming back," said Carl Larry, director of business development with Frost & Sullivan, in Houston. "They are coming back and now we have that supply to deal with."
Buyers of Iranian crude are free to import as much of it as they want after the International Atomic Energy Agency determined that the country had curbed its ability to develop a nuclear weapon.
As holder of the world's fourth-largest reserves of crude and biggest deposits of natural gas, the nation gains immediate access to about $50bn in frozen accounts overseas, funds the government says it will use to rebuild industries.
Saudi Arabia's al-Naimi said on Sunday that crude prices will rise and market forces and co-operation among producing nations will lead in time to renewed stability.
He declined to comment on how the removal of economic sanctions against Iran might affect prices.
Saudi Arabia is the world's biggest crude exporter, pumping 10.25m barrels a day in December.
Production outside OPEC will drop by 660,000 barrels a day this year, the group said yesterday in its monthly market report, deepening the decline from its previous estimate by 270,000 barrels a day.
Much of that decline is thought likely to come from US shale oil producers, although so far they have been unwilling to cut production.
In many cases shale producers have maintained production in order to meet interest repayments on their debts.
In a sign of just how strong market sentiment is against the commodity known as "black gold", data from US regulators showed hedge funds last week increased bearish oil wagers to a record. Speculators' short position in WTI rose 15pc in the period ended January 12.
That is the highest rate since at least 2006. In contrast, net long positions have fallen to their lowest in five years. (Additional reporting by Bloomberg)