Oil drops to fresh 12-year lows as glut concerns worsen

Consumption in the US has been subdued in recent weeks, as warm weather has limited demand for heating oil and consumers are buying less gasoline than the previous year, EIA data show.

The price drop marked the first time since December 2003 that Brent prices have slipped below the $30 per barrel mark, the Wall Street Journal said.

The March Brent contract was down USD 1.77, or 6.25 percent, at USD 28.96 a barrel, having fallen as low as USD 28.82, the weakest level since February, 2004.

“Historically, WTI traded at a premium to Brent and it looks like we’re moving back to that”, said Kyle Cooper, director of research with IAF Advisors and Cypress Energy Capital Management in Houston. After spending most of the Asian trading day in negative territory, it was up 17 cents at $30.48 a barrel at 0730 GMT (0230 ET).

The deal could bring daily exports of half a million barrels of oil within a week of the removal of the economic sanctions and a million barrels within six months, said Roknoddin Javadi, head of National Iranian Oil Company, said last month, as per media reports.

Crude oil prices are expected to remain low as supply continues to outpace demand in 2016 and more crude oil is placed into storage.

West Texas Intermediate (WTI) crude oil prices are expected to be $2/b lower than Brent in 2016 and $3/b lower than Brent in 2017.

He said there was a possibility of an agreement being reached between the two nations on regulating their oil production before the conflict arose, but now such a pact is unlikely to be reached and the two large producers may end up undercutting each other by pushing crude oil into world markets.

Some members of OPEC, such as Nigeria’s oil minister on January 12, are openly calling for a meeting of the 13-member group, which pumps over 30 percent of the world’s crude. Barclays, the U.K.-based bank, said it expects Iran to produce nearly 700,000 barrels per day (bpd) more oil in the fourth quarter of 2016 than over the same period in 2015. But bearish sentiment returned as markets expect Iran will finally see western-imposed sanctions lifted over the weekend.

Given current estimates by the current oversupply into the oil market in the order of 2mln-to-2.5mln barrels per day, it would trigger further uncertainty over crude prices that have come down from highs above US$110 a little over 18 months ago. Prices have lost 20% this year.