Brent crude fell below $28 a barrel on Monday for the first time since 2003, as oil traders braced for Iran’s emergence from years of economic isolation under a landmark nuclear deal.
Iran said it would swiftly raise oil output after of Western sanctions, despite the threat of adding to a glut of crude that has already crashed prices by almost 75 per cent in the last 18 months.
The US agreed at the weekend to lift sanctions targeting Iran’s oil industry after Tehran implemented steps designed to curb its nuclear ambitions. Sanctions on the Opec member’s oil industry have cut its exports from 2.5m barrels a day in 2011 to little over 1m b/d, putting severe strain on its economy.
“Iran is free to sell oil to the market, and supplies should come quickly,” said Morgan Stanley analyst Adam Longson.
Satellite tracking data and industry sources indicate Iran already has a flotilla of more than 20 very large crude carriers (VLCCs) loaded off its coast, allowing it to potentially push as much as 50m barrels of heavier crude and ultralight condensate oil quickly into the market.
By the end of 2016 Iran says it will be able to get exports back to 2m b/d, lowering the chance of Saudi Arabia, Iran’s chief regional rival, agreeing to lead any kind of output reduction to shore up the price.
Brent crude fell as much as 4 per cent on Monday to a 12-year low of $27.67 a barrel and extending losses since the start of 2016 to more than 25 per cent. Prices later recovered to above $28 a barrel as traders banked profits on bets against the price.
US benchmark West Texas Intermediate fell to $28.36 on Monday — the lowest since 2003.
The oil price collapse has decimated producer countries’ budgets, led to wide scale job losses in the industry, and seen major energy companies slash more than $400bn in future investment.
Opec, the oil producer’s cartel that controls more than a third of world output, said Monday the average price of a basket of members’ crudes had already fallen below $25 a barrel – barely a quarter of the level it averaged between 2008 and 2014.
OPEC kingpin Saudi Arabia has refused to cut its production in the face of weaker prices, saying that the producer’s cartel should not subsidise higher cost producers in North America and other parts of the world.
Official data on Monday showed Saudi crude oil exports rose to 7.7m b/d in November from 7.4m b/d in October.
“Market forces, as well as the co-operation among the producing nations, always lead to the restoration of stability. This, however, takes some time,” said Saudi Arabia’s oil minister Ali al-Naimi in a speech at the weekend.
Oman, one of the only major Middle East oil producers that is not in Opec, said on Monday it was “ready to do anything” to stabilise the price, including joining output cuts with the cartel.
Mohammed bin Hamad Al Rumhi, the Gulf state’s oil minister, said it was ready to cut output by 5 to 10 per cent from current levels around 1m b/d, according to Reuters.
Saudi Arabia has said it would consider cutting production if joined by countries outside the group, though it has mainly focused its attention on Russia as it has raised output to a post-Soviet high above 10m b/d.
While the price crash has primarily been driven by excess supplies, analysts and investors are also increasingly concerned about the strength of oil demand growth. Signs of a slowdown in China’s resource-hungry economy have spread fears for global growth.
“The price decrease, in short, shows no signs of ending,” said Philip Verleger, an energy economist. “Globally, secular stagnation seems to be taking hold. Oil use appears to be falling in the United States and around the world.”
Hedge funds have accumulated the largest bet against US crude oil prices on record, raising short future and options positions against the benchmark contract in New York by 15 per cent last week to the equivalent of more than 200m barrels of oil.
