Tensions between the two major oil producers over Saudi Arabia’s execution of a prominent Shiite cleric have erupted into a full-blown diplomatic crisis after Riyadh and its Sunni Arab allies cut or reduced ties with Iran, which sparked global concern.
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The price of “light sweet crude” (WTI) in NY on its side fell below the threshold of 35 dollars the barrel in mid-December, a first since mid-February 2009.
Oil prices tumbled over 5 percent to levels not seen since the early 2000s on Thursday as a sliding yuan and a second emergency halt in China’s stock trading this week left Asian markets in turmoil.
‘The further that oil prices fall in the near term, the stronger the supply and demand responses are likely to be, and the sharper the subsequent rebound, ‘ Jessop said.
Saudi Aramco reduced the premium for Arab Extra Light crude to the U.S.by 50 cents a barrel to $2.35 a barrel more than the benchmark and kept price differentials for all other grades to the USA unchanged from January.
The crash raises the risk of slowing demand from the world’s No. 2 oil consumer, threatening to prolong an over year-long supply overhang.
Data from American Petroleum Institute (API), an industry group, showed crude stocks fell last week by 5.6 million barrels, while stocks at the Cushing, Oklahoma, delivery hub rose by 1.4 million barrels. Given the importance of both Saudi Arabia and Iran to the global oil markets, it’s no great surprise that tension between them are spooking the markets.
OPEC, led by Saudi Arabia, is engaged in a price war with higher cost producers, including the US, as it tries to protect its share of the market.
“Oil futures saw some demand today as there was a slight improvement in market sentiment after China’s central bank fixed the yuan mid-point more or less the same from the previous day”, said Bernard Aw, market strategist at IG Markets in Singapore.
Another day, another China rout, another global sell-off.
Technical analysts also said there was little to stop the price tumbling further.
The US Energy Information Administration said last month that production in 2016 would fall by 570,000 barrels per day (bpd) to 8.76m bpd, an upward revision from its 520,000 bpd forecast in November.
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Although OPEC oil output dipped slightly in December, overall it is still very close to record levels, reducing any chance of seeing a rise in oil prices any time soon.
