Oil prices have dropped despite tension between key producers Saudi Arabia and Iran. Prices fell 30 per cent a year ago. The contract lost 79 cents to US$35.97 on Tuesday, the lowest close since Dec 21.
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In early trade, oil rallied after a breakdown in diplomatic ties between Saudi Arabia and Iran fed worries about Middle East crude shipments. The world turned to the Organization of Petroleum Exporting Countries (OPEC) to support prices by cutting production rates, which the group – led by its largest exporting member country, Saudi Arabia – decided against.
Notwithstanding the Cushing build, analysts polled by Reuters forecast that crude stocks across the United States probably fell last week by 500,000 barrels. U.S. benchmark West Texas Intermediate for February shed US$1.06 to stand at US$32.91. Adding to concerns about the persistent glut of crude was a reading out of China showing the 10th straight month of contraction in the country’s manufacturing sector.
A global supply glut and tepid economic growth combined to weigh on prices last year, and they are poised to remain depressed this year, occasional blips aside.
Government figures show that the stockpile of US crude oil grew by 2.6 million barrels during the week ended December 25 and was 9.9 million barrels higher than a year ago. Eventually, the USA started relying less on oil import thanks to the huge scale of crude output.
“Oil markets will be concerned that this could be an incremental step in a deteriorating political situation that might ultimately threaten world oil supply”, said Ric Spooner, chief analyst at CMC Markets.
“This will be the first time since the 1986 oil price downturn that we see two consecutive years of a decline in investments”, Bjoernar Tonhaugen, vice president of oil and gas markets at Rystad Energy, told the news agency Reuters.
The explanation lies partly in robust production from the U.S., Glickman said.
Mcknight said the US decision to allow oil exports after a decades-long ban is also adding to the oversupply. Oil prices didn’t spike after the Saudi-Iran confrontation partly because “the U.S. has come in as a major player”, he said Tuesday during a speech in Washington.
“Our base case analysis for 2016 and 2017 assumed Saudi Arabia would continue to seek market share and would not cut its output to make room for Iran”.
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“Now the consumer may think ‘this is just wonderful because prices are going to be going down, ‘ but they’re not going down as fast as they see them happening in the paper”, he said.
