Iran doesn’t want oil price war, may limit output rise

Oil prices edged up on Monday after a breakdown in diplomatic ties between Saudi Arabia and Iran that some speculated could result in supply restrictions, although gains were tempered by data showing some of Asia’s largest economies are struggling.

State-owned Saudi Arabian Oil Co. increased its official selling price for Arab Light crude sold to Asia by 60 cents a barrel to 80 cents below the regional benchmark, it said in an e-mailed statement.

In the United States, West Texas Intermediate (WTI) futures set fresh 2009 lows of $32.77 per barrel, with prices crawling back to $33.25 by 0213 GMT. Both contracts closed lower on Tuesday. “Crude oil oversupply is still in play; however the deficit between demand and supply is getting smaller”, said Daniel Ang, an investment analyst at Phillip Futures, in a note on Wednesday.

“Lingering concerns about growing supply continued to outweigh the implications of rising tensions in the Middle East, ” ANZ bank said, referring to global production outpacing demand by hundreds of thousands of barrels every day.

Traders said a dispute between Saudi Arabia and Iran, which might normally be seen as posing a risk to oil supplies, may actually be bearish as it all but eliminates cooperation over production between the two OPEC members.

To make matters worse, China was forced to take emergency measures on Monday in order to prevent its stock market from collapsing during the first day of trading in 2016.

The clash between Saudi Arabia and Iran comes as Tehran, which holds some of the largest proven reserves, hopes to ramp up oil exports following the expected removal of sanctions against it under a deal over Iran’s contested nuclear programme.

Oil tumbled to its lowest level for almost 12 years last night, raising the prospect of further falls in fuel prices on British forecourts.

The sanctions have halved Iran’s oil exports to around 1.1 million bpd from a pre-2012 level of 2.5 million bpd, and the loss of oil income has hampered investments.

The market had already fallen heavily on Wednesday, with Brent breaching US$35 on fears that the ongoing row between key producers Iran and Saudi Arabia would dim prospects for output cuts.

Oil futures initially rose, tracking Asian stocks, but were later pulled down as data showed China’s national rail freight volumes logging their biggest ever annual decline in 2015, raising questions about how sharply the world’s number two economy was slowing and what this meant for oil demand.