The cleric and 46 others were executed on Saturday after being convicted of terror-related offences, triggering riots at Saudi’s embassy in Tehran.
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Benchmark Brent futures were traded at $34.48 a barrel at 1606 GMT, down $1.94 on the day, and at their lowest level since early July 2004.
Saudi Arabia and Iran are two of the largest producers in the Organization of the Petroleum Exporting Countries, and increased tensions between the two nations could add to the discord within OPEC that has prevented the group from agreeing on a strategy to stabilize oil prices.
But analysts said not even geopolitical strife in the Middle East was enough to prop up the price for long, given rises in production. “The current ramping up in tensions between Saudi Arabia and Iran only further confirms our view that Saudi Arabia is unlikely to cut its output to help Iran regain market share”. Currently, West Texas Intermediate (WTI) trades at $37.31 per barrel in European trading hours.
Saudi Arabia said on Sunday it severed diplomatic ties with Iran.
“Shale production and increasing capacity from countries like Russian Federation who need to protect revenue combined with expectations of further Iranian supply mean actual production as well as expectations of future production are rising”, Hewson said.
The oil cartel refused to moderate its production as members are concerned with holding their market shares and pushing out high-cost competitors rather than seeing the price go back up.
In the past year, China’s demand has held up as the government and the local refiners took advantage of the cheap oil prices.
“Given what is likely to be some high-pitched volatility within global equities this month, we look for a closer connection between oil and the stock market for a few weeks”, said Jim Ritterbusch, of Chicago-based oil markets advisory Ritterbusch & Associates.
“But the equity markets sell off is more pressing and hard to ignore because of the impact of China on the global economy and overall demand for oil”. But the latest figures released last night by the US Department of Energy showed production rising by 17,000 barrels a day over the past seven days, the fourth consecutive week of increases.
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The EIA (U.S. Energy Information Administration) estimates that WTI crude oil prices could average $51 per barrel in 2016. “For 2016 we think of it as the market rebalancing year, but only from 2H (the second half of 2016)”.
