“The Saudi-Iran standoff is certainly one to worry over given its ramifications for oil supply”, said Phil Flynn, analyst at the Price Futures Group brokerage in Chicago.
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As of 9:25 the cost of the February futures of Brent crude oil on London’s ICE trading have risen by 1.8% to $37.95 per barrel, WTI increased by 1.65% to $ 37.65 per barrel.
Oil and gold prices often balance each other but it is often noticed that the price spikes in gold that is triggered by safe-haven bids normally does not last for long.
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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.
“Next year will be the year of undersupply which means we should see at least an eighteen month bull market from the middle of this year”, it added. WTI was also weakened by data from market intelligence firm Genscape that showed a build of more than 480,000 barrels in Cushing supply, traders who saw the data said.
Iranian protesters set fire to the Saudi Embassy in Tehran during a…
Because of overproduction chiefly by Saudi Arabia and non-OPEC producers, there is now up to 2.5 million bpd of excess oil in the market which has caused crude prices to lose around 60% of their value since mid-2014. This confrontation will be contrived to force Saudi Arabia and its junior partners Iran, Iraq and Syria to limit production, to raise prices, or face military consequences. Many analysts expect a price recovery toward the end of 2016 to pull up the average for the full year with production especially in the USA falling as drillers succumb to debt and low revenues. Surveys in China showed factory activity in the world’s second-largest economy shrank sharply in December, sparking a 7 percent slide in Chinese shares that triggered a trading halt.
According to a study by the EIA (U.S. Energy Information Administration), if projected crude oil production remains below 10.6 MMbpd over the next decade, the lifting of the ban on oil exports may not make a major difference.
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Analysts believe oil could fall even further in 2016 since Iran will begin pumping now that sanctions over its nuclear development programme are being lifted.
