Oil prices jump over 2 percent on Saudi Arabia, Iran tensions

Paul Horsnell, global head of commodities at Standard Chartered, said: ‘Saudi Arabia’s breaking of diplomatic relations with Iran is probably not an immediate game-changer for the oil market.

The prices fell despite the escalating conflict in the Middle East over Saudi Arabia’s execution of a prominent Shiite cleric.

Crude inventories at Cushing, Oklahoma, the delivery point for WTI futures and the biggest USA oil-storage hub, increased by 1.37 million barrels last week, the API reported Tuesday, according to Twitter postings and a person familiar with the numbers.

Alliance Bernstein said it expected average Brent prices to fall from $53 per barrel past year to $50 in 2016 but to recover to $70 a barrel in 2017 and to rise to $80 per barrel in 2018.

Crude oil prices reversed earlier gains yesterday, as gloomy Chinese data dragged on sentiment in a market already weighed down by persistently high production levels.

As of 12:30 a.m. GMT (7:30 a.m. ET) the price of Brent crude, the European benchmark, slipped to less than $35 a barrel – its lowest level in more than 11 years.

The American benchmark, West Texas Intermediate, is down by around 1.5%, at $35.45.

The slump in oil prices follows the tumble in the Chinese stock market, which went down seven percent on Tuesday due to a drop in manufacturing activity.

At the same time, demand is slowing, especially in Asia where the biggest economy and energy consumer, China, is seeing the slowest economic growth in a generation.

“Neither one of them (Saudi Arabia or Iran) is going to voluntarily cede a single barrel to the other, so it arguably makes a coordinated production cut even less likely than it has been”, one Middle East oil trader said.

Global crude production is outpacing demand following a boom in USA shale oil and after a decision by the Organization of the Petroleum Exporting Countries past year not to cut production in order to defend market share.

In a separate commentary, Ang said global demand not keeping pace with an ongoing supply glut will continue to be a key influence on prices over the long term.

OPEC introduced output ceiling of 30 million bpd in its December 2011 meeting as it scrapped allocating fixed production quotas to member countries.

Iran said it was prepared to moderate its output and exports, once sanctions are lifted, to avoid pressuring prices, a senior National Iranian Oil Co official said.