Oil Trades Below $29 as Glut Expands on Rising US Stockpiles

The U.S and European Union imposed sanctions on Iran were lifted January 16, allowing the energy-rich country to increase its crude oil exports by 1 million barrels per day within the next six months, as Tehran has repeatedly noted previous year. The February contract expired yesterday at the lowest level since May 2003.

Investors are anxious that a glut of crude is combining with weak demand due to economic weakness, especially in China where concerns are growing about demand contraction.

Global oil demand flipped from a five-year high in the third quarter at 2.1 million b/d to a one-year low in the fourth quarter of 1.0 million b/d, which does not bode well as new Iranian output overcomes declines in USA production, the International Energy Agency (IEA) said Tuesday.

The slide of more than 25 percent in oil prices so far this year has piled more pain on oil drillers and producing nations alike, yet they continue to pump more oil into an oversupplied market.

Concerns over the tepid global economy, the US stock-market sell-off and surplus production that shows no sign of ebbing drove oil prices down even further Wednesday.

The return of Iran to the world oil market, following the lifting of the sanctions against the country, will not be a game-changer for prices, Jason Tuvey, Middle East Economist at British economic research and consulting company Capital Economics believes.

A new International Energy Agency report suggests that oil prices could fall much further in 2016, potentially threatening the financial viability of new exploration projects supplied by the breakbulk industry.

Recently OPEC slashed the non-OPEC crude supply outlook and on the contrary, upwardly revised the global oil demand forecast.

While US production peaked at 9.7 million barrels a day in April, it has remained stable in recent months, at around 9.2 million barrels a day. Nigerian stock market last week lost over N455 billion as stock prices failed to rally.

United States crude prices have fallen 24 percent since the beginning of the year.

USA crude oil inventory are already near highest levels in decades and their growth adds to the oversupply of crude oil around the world, which has battered the market for almost two years. With OPEC deciding last December against cutting output, traders are betting the cartel is less likely to cut output now to prevent easy passage of Iranian crude into the market, particularly at a time of tensions between Iran and Saudi Arabia.