Benchmark futures surged as much as 4 percent on Monday to three-week highs as relations between Saudi Arabia and Iran soured following Riyadh’s execution of a prominent Shi’ite Muslim cleric.
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US Secretary of State John Kerry called his counterparts in each country in a bid to ease the tensions and the United Nations moved to shelter peace efforts in Syria and Yemen from the diplomatic storm.
US crude’s West Texas Intermediate (WTI) futures finished down nearly 1 percent, pressured by worries that record inventories could swell further at the Cushing, Oklahoma delivery hub.
Even though OPEC kingpin Saudi has stood firm on its strategy of not cutting the production ceiling in order to squeeze out smaller producers in the depressed market, supply adjustments-particularly in the US-are still taking “a lot longer than we’ve anticipated”, Darling told CNBC’s Squawk Box.
However, a senior Iranian oil official said the country could moderate oil export increases once sanctions are lifted to avoid putting prices under further pressure.
Saudi Aramco reduced the premium for Arab Extra Light crude to the USA by 50 cents a barrel to $2.35 a barrel more than the benchmark and kept price differentials for all other grades to the U.S. unchanged from January.
Sharply devaluing Chinese currency and an apparent economic slowdown in the People’s Republic create a new headache for oil traders, as the prospect of weaker consumption meets the spectre of oversupply.
With prices near multi-year lows, analysts said that oversupply remained the main concern in the market. Oil prices posted a steep decline for the second consecutive year as investors continue to wrestle with a global glut of crude.
Elsewhere in the energy complex, natural gas for February fell 0.2% to $2.32 per million British thermal unit, while gasoline for the same month sank 3.6% to $1.21 a gallon. Saudi Arabia, the world’s largest crude exporter, has led OPEC in fighting for market share against higher-cost producers such as shale drillers in the U.S. The group set aside its output target of 30 million barrels a day at a meeting in Vienna last month.
“Lingering concerns about growing supply continued to outweigh the implications of rising tensions in the Middle East, ” ANZ bank said, referring to global production outpacing demand by hundreds of thousands of barrels every day.
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The clash between Saudi Arabia and Iran comes as Tehran hopes to ramp up oil exports once sanctions come off against its nuclear program.
