Relations between Saudi Arabia and Iran – two Middle Eastern powerhouses who are both founding members of the Organization of Oil Exporting Countries (OPEC) despite the fact that global bans have, until recently, limited Iranian oil exports – have deteriorated following Riyadh’s execution of Shiite cleric Nimr al-Nimr on Saturday.
Saudi Arabia’s severing of diplomatic ties with Iran will not affect its efforts to secure peace in Syria and Yemen, and ties with Iran would be restored when it stops interfering in the internal affairs of other countries, said the kingdom’s ambassador to the United Nations.
US crude’s West Texas Intermediate (WTI) futures fell 30 cents, to $36.74.
Right now geopolitical tensions are as high as they’ve been in a long time, and the oil markets do not like it at all.
“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.
Adding to this oversupply, Iranian oil exports are widely expected to increase in 2016 as Western sanctions against the country for its alleged nuclear weapons programme are likely to be lifted.
Oil could fall to as low as US$20 a barrel before producers start making significant production cuts, according to Goldman Sachs forecasters. 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.
Iran will exercise “great caution” in increasing oil exports when sanctions are lifted early this year, a senior official said, promising not to put further pressure on slumping oil prices.
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.
Saudi Arabia, the world’s largest crude exporter, raised pricing for all February oil sales to Asia amid higher refining margins in the region.
Brent crude dropped from more than $100 a barrel in June 2014 to trade at about $37 on Tuesday after Opec ramped up output amid swelling shale oil supplies from the US.
After markets closed Tuesday, the American Petroleum Institute, an industry group, surprised market participants and said that US oil inventories fell by 5.6 million barrels in the week ended January 1.