Crude Tumbles Close to Its 11-Year Low

Brent traded less than 40 USA cents above the lows last seen during the 2008 financial crisis of US$36.20 a barrel.

In early trade, United States benchmark West Texas Intermediate was 16 cents down at $35.46 around 0500 GMT, while Brent crude was 26 cents lower at $37.67.

On Monday, Brent crude tumbled to a low of $36.33 a barrel, below its close of $36.61 a barrel from December 2008.

Oil is under continued pressure as OPEC has failed to make production cuts, leading to an ever-growing oversupply.

Both benchmarks have fallen every day since the Organization of the Petroleum Exporting Countries on December 4 abandoned its output ceiling.

Iraq and Saudi Arabia have pumped at record levels this year, while oil market participants are eyeing the appearance of additional barrels from Iran when sanctions linked to its nuclear programme are expected to be lifted next year.

Iran’s crude oil exports are set to hit a six-month high in December as buyers ramp up purchases in expectation that sanctions against the country will be lifted early next year.

“A lot of producers are trying to maintain positive cash flows and that means maximising output, and Iranian barrels are also coming back to the market”, he said.

In its monthly report released last week (http://www.marketwatch.com/story/iea-takes-a-swipe-at-opecs-freewheeling-policy-2015-12-11), the IEA said the growth of global oil demand will slow to 1.2 million barrels a day in 2016, compared with 1.8 million barrels a day this year, as support from sharply falling oil prices begin to fade.

At such level of oil price, other producers, mainly the worldwide oil companies, can not operate.

Even with declining world prices, Iran’s deputy oil minister, Amir Hossein Zamaninia, said there was “absolutely no chance” that Tehran would delay its plan to increase its oil exports.

“The oil market remains more tightly balanced than is reflected in today’s low prices”.

Oil markets usually see strong demand towards year’s end as the northern hemisphere enters its peak heating demand winter season, yet an unusually mild start to winter, blamed at least in part on the weather phenomenon El Nino, has limited the amount of heating days.

ANZ bank said on Friday that ‘crude oil markets will remain subdued in 2016, though prospects for a recovery look better in the second half of the year’.

This seasonal weakness is compounding a structural oversupply as 0.5 million to 2 million barrels of crude per day (bpd) is produced in excess of demand.

OPEC’s crude oil production increased to 31.5 mb/d during last two years, 1.5 mb/d more than the determined 30 mb/d.