Brent oil sank Wednesday below $ 35 for the first time in more than 11 years on oversupply and fears that the row between key producers Iran and Saudi Arabia would dim prospects for output cuts.
At almost 1600 GMT, European benchmark Brent North Sea crude oil for February delivery hit $ 34.26 per barrel — the lowest since July 1, 2004 — having already breached $ 35 in earlier deals.
The stronger dollar also dented prices because it makes oil more expensive for buyers using weaker currencies, thereby weighing on demand.
“Oil remains on a slippery slope,” said Gain Capital (NYSE: GCAP – news) analyst Fawad Razaqzada.
“The recent rise in tensions between Saudi and Iran just means even less coordination within the OPEC in terms of controlling oil supply, not that there was much of a commitment in this regard anyway.
“So, although geopolitical risks may have increased in the region, this time it is unlikely to be oil-positive as it won’t affect supply.”
In recent years, the market has been plagued by a global glut, collapsing from highs above $ 100 in mid-2014 as abundant supplies were exacerbated by strong output by OPEC and the United States.
In 2015, the oil market tumbled by about one third after the Organization of the Petroleum Exporting Countries (OPEC) — which pumps more than a third of global oil — refused to slash output in both June and December.
Oil continued to spiral lower this week, as escalating diplomatic tensions between Iran and Saudi Arabia added fresh strains on OPEC’s unity, reducing the chances of a common response to rock-bottom oil prices, experts said.
Added to the picture, Riyadh cut the February price of its European oil exports as the OPEC kingpin continues to fight for market share amid a huge glut.
GKFX analyst James Hughes agreed the latest price plunge was sparked partly by dwindling hopes of an OPEC deal to curb record-high output.
He added mounting evidence of slowing economic growth in China — the world’s second biggest oil consumer after the United States — had fuelled worries over weak demand.
At the same time, oil was pushed lower by fresh geopolitical fears after North Korea’s nuclear test.
– Blow to hopes –
“I think this (Brent price low) is a knock on effect from the likelihood that the geopolitical tensions between Saudi Arabia and Iran have put an end to hopes on a deal on oil production,” Hughes told AFP.
“If you then add this to the fact that we have had relentless bad news out of China … then the snowball effect is in full swing.
“The events in North Korea have only added to further downward pressure.”
OPEC policy has become tougher since Saudi Arabia executed prominent Shiite cleric Nimr al-Nimr last weekend, triggering a sectarian standoff with Iran.
Gulf countries, led by influential OPEC kingpin Saudi Arabia, refuse to cut output unless the oil-producing states that are not members of the group agree to do the same.
A cut would likely curb global oversupply, help prices recover and lift precious revenues for the cartel’s 13 member nations.
OPEC’s no-change stance is aimed at pushing oil prices lower to squeeze less-competitive players, including US shale producers, out of the market.
Iran meanwhile has no intention of curbing its production with the lifting of Western sanctions on the horizon, which would allow it to resume crude oil exports.
Meanwhile on Wednesday, the US Department of Energy (DoE) reported that gasoline or petrol stockpiles surged 10.6 million barrels in the week to January 1.
That easily outstripped expectations for an increase of 1.8 million barrels according to analysts polled by Bloomberg News, and signalled weak demand.
The DoE added however that crude inventories dropped 5.1 million barrels last week, dashing market hopes for a gain of 500,000 barrels.
In late afternoon deals, Brent prices stood at $ 34.62 a barrel, down $ 1.80 from Tuesday’s closing level.
US benchmark West Texas Intermediate for February shed $ 1.63 to stand at $ 34.34.
