Oil Down; China, Wall St Tumble Erase Early Rally On Middle East

Iran plans to raise oil output by half a million to 1 million bpd post sanctions, although Iranian officials said over the weekend they did not plan to flood the market with its crude if there was no demand for it. The rates remain around 80 cents below the regional benchmark, Oman/Dubai crude oil, with the move being driven by higher margins on refining in the region.

“This is a method that countries like Saudi Arabia, Kuwait, UAE, the US, China and leading oil giants like Royal Dutch Shell and BP have adopted and we should not stay behind them in this field”.

Saudi Arabia said on Sunday it severed diplomatic ties with Iran.

At around 0300 GMT, US benchmark West Texas Intermediate for delivery in February was up 25 cents at $37.01 and Brent crude was trading 24 cents higher at $37.46.

Notwithstanding the Cushing build, analysts polled by Reuters forecast that crude stocks across the United States probably fell last week by 500,000 barrels.

Some analysts think oil prices have fallen too far and will stage a sharp recovery later in the year, with Commerzbank targeting $60 per barrel by the end of 2016.

The fresh drop in oil prices has come as signs emerge of slower economic growth in China and as tensions heighten between Iran and Saudi Arabia, two prominent members of the Organization for the Petroleum Exporting Countries. Dubai crude, as quoted by price-reporting agency Platts, averaged $34.591 a barrel for December, the lowest since December 2004 as Middle East suppliers offered discounts in a battle for Asian market share.

But crude futures had erased those gains by the close on Monday as fears about the global economy outweighed concern about the dispute between Saudi Arabia and Iran, which looked unlikely to disrupt oil supplies immediately. However, oil price wars and new strategies to obtain customers may put pressure on oil prices in 2016. On top of this, shale gas production has been stepped up in the U.S., with the country recently opening its first export terminal to help to drive down demand for oil. Iran pumped 2.7 million barrels a day of oil in December, data compiled by Bloomberg show.

U.S. stockpiles of gasoline and distillates, including diesel fuel and heating oil, rose in the week ending January 1, and pushed total inventories of crude and refined products to a record high, the U.S. Energy Information Administration said Wednesday.