With wave of Iranian oil imminent, a shudder in Saudi Arabia

The global benchmark of Brent crude tumbled to as low as $27.67 in Asia on Monday – a fall of 4.4% on Friday’s close – before rebounding to trade at $28.52 at 5am GMT. This follows a plunge of 65 percent in the past two years.

At the same time, some investors believe cheap oil is a bad omen about the health of the global economy, especially in China.

“Iran’s additional crude shipments have the potential to further depress prices, perhaps to as low as US$25 a barrel”, Gordon Kwan, a Hong Kong-based analyst at Nomura Holdings Inc, said by email yesterday. Issues that need to be addressed include how much Iranian crude is in storage and could be released immediately as well as how large a discount Tehran will offer for its oil to secure a higher market share. The IEA estimates that Iran’s crude oil production capacity at 3.6 million barrels a day, which is 800,000 more than current levels produced.

The extra oil from Iran is coming in at a time when the market is already suffering from significant oversupply, as suppliers are already providing around a million barrels a day over demand which has resulted in a global drop of more than 75 percent since mid-2014, and more than a quarter since the beginning of 2016 alone.

The leading petrochemicals sector dipped 8.0 percent, while banks lost 5.3 percent.

Oil Minister Bijan Zanganeh told reporters Iran plans to double its crude oil exports after sanctions are lifted.

He said prices rebounded on some bargain-buying.

All Gulf stock exchanges ended 2015 in negative territory, led by Saudi Arabia, after the sharp decline in oil prices.

The easing of sanctions threatens a tsunami of oil on to markets that are already drowning in supplies. Another half-a-million barrels would be added to the daily production rates soon after.

Oil-market stability will be achieved through cooperation among major producers but this will likely take time, Saudi oil minister Ali al-Naimi said Sunday, signaling the world’s top petroleum exporter is still not prepared to take sole responsibility for propping up the oil price.

U.S. officials said that they would introduce new sanctions against Iran if it continues developing its missile program, largely seen as a deterrent, or threat, to its Gulf neighbors in an increasingly militarized region.

The decision to lift the sanctions against Iran came on Sunday, January 17 after the worldwide nuclear watchdog, the IAEA, said Iran had complied with a deal created to prevent it developing nuclear weapons.

While I leave the technical analysis to those who know better my fundamental advice on these pages regarding oil price has for a long while now tended to the downside.

DBS said expectations are that exports from Iran will grow by 300,000 barrels per day in the short term and rise to 500,000 barrels per day by mid-year.