Shia-Sunni conflict – Oil price casualty

“Petroleum markets drew some initial support on the rising tensions between Saudi Arabia and Iran after Saudi Arabia executed a prominent Shiite cleric Saturday on a terrorism charge, triggering protests, and then a severing of diplomatic ties”, said Tim Evans of Citi Futures. February Brent crude on London’s ICE Futures exchange fell $0.83 to $33.40 a barrel.

The West Texas Intermediate (WTI) crude oil price today (Monday) fell 1.1% as tensions come to a head between Saudi Arabia and Iran.

Sharply devaluing Chinese currency and an apparent economic slowdown in the People’s Republic create a new headache for oil traders, as the prospect of weaker consumption meets the spectre of oversupply.

Even though OPEC kingpin Saudi has stood firm on its strategy of not cutting the production ceiling in order to squeeze out smaller producers in the depressed market, supply adjustments-particularly in the US-are still taking “a lot longer than we’ve anticipated”, Darling told CNBC’s Squawk Box.

In the past, turmoil in the Middle East has been associated with higher prices for oil, and, consequently, higher prices at the pump for drivers.

Iranian officials have repeatedly called on OPEC to make room for a supply jump from the Islamic Republic while pledging to ramp up exports as soon as sanctions on its oil industry are lifted in the next few months under a nuclear deal with world powers.

Concerns about the economy in China, the world’s second-largest oil consumer, were worsened by news that national rail freight volumes logged their biggest ever annual decline in 2015. The U.S. Energy Information Administration on Thursday said that domestic oil production was higher than previously reported in each of the first nine months of 2015.

At about 1030 GMT, European benchmark Brent North Sea crude oil for February delivery sank to $34.83 per barrel- the lowest level since July 1, 2004.

Oil prices fell on Tuesday on concerns about the pace of economic growth in China and a stronger U.S. dollar, handing back some of the gains triggered by an escalation of tensions in the Middle East.

Saudi Aramco reduced the premium for Arab Extra Light crude to the USA by 50 cents a barrel to $2.35 a barrel more than the benchmark and kept price differentials for all other grades to the United States unchanged from January. “With this tightening in the supply and demand balance, political risk will become more important to oil prices”. We are expecting a rise in crude oil inventories, which should put further downward pressure on prices, ” ANZ said.