U.S. crude drops back below US$30 as Iraq adds record output

Prices ended on a buoyant note Friday, with both main oil contracts soaring by about 10 percent.

The Dow Jones industrial average fell 49.2 points, or 0.31 per cent, to 16,044.31; the S&P 500 dropped 4.27 points, or 0.22 per cent, to 1,902.63 and the Nasdaq Composite index shed 16.41 points, or 0.36 per cent, to 4,574.77.

Analysts at Energy Aspects said Monday that global oil inventories would continue to grow in the coming months, but should start to ease by mid-year.

“So right now, we’re in wait-and-see mode as the market pauses to digest last week’s very strong gains”, said Adam Sarhan, chief executive of Sarhan Capital in NY. According to the data from the benchmarks examined by The Wall Street Journal, it is considered as one of the tightest correlation in the past 26 years at any given time.

US crude rose 15 cents at $32.34 a barrel, compared with its session-high of $32.64 and previous settlement at $32.19.

European Central Bank chief Mario Draghi on Thursday signalled further stimulus measures for the region, while a report in the respected Nikkei business daily on Friday said the Bank of Japan is also considering extra measures.

Meanwhile, Iraq may raise oil output further this year, reaching levels as high as 4 million barrels per day (bpd) from the country’s south, a senior Iraqi oil official said. The senior energy economist at Amsterdam’s ABN Amro, Hans van Cleef said that the news of Iran hitting a record building oversupply has caused the decline in the oil prices.

The oversupply of oil reserves and stable demand over the past two years has driven global prices to lows not seen since the 2007-2008 financial crisis. It was nearly the largest two-day rally in history, while the renewed selling yesterday added to oil market volatility.

Despite the evidence that crude oil prices were on the mend, and that they were below levels thought to be sustainable, analysts at HSBC lowered their price forecasts for 2016 to 2018 due to the multiple increased risks for the recovery.

Moreover, support among the Organization of the Petroleum Exporting Countries for taking action to steps to hold up crude prices is feeble, with only one OPEC country supporting an emergency meeting over the matter, Indonesia’s OPEC governor said.