The West Texas Intermediate (WTI) crude oil price today (Monday) fell 1.1% as tensions come to a head between Saudi Arabia and Iran. Traders said market intelligence firm Genscape reported a build of more than 480,000 barrels in Cushing crude supplies for the week to Jan. 1, after flooding in the U.S. Midwest caused temporary closure of a couple of pipelines.
Global Brent crude benchmarks were at $36.45 a barrel at 0613 GMT, close to their last settlements and within half a dollar of an 11-year low of $35.98 a barrel they fell to in December.
Brent crude climbed 4% to $38.77 a barrel.
The People’s Bank of China set a weaker midpoint for the yuan, prompting concerns that the economy of the world’s largest energy consumer could be in worse shape than believed. This suggests that despite the excess oil that will flood the market in 2016, oil prices may not fall further, as most of the negative fundamental factors have been factored into current prices.
The possibility of cutting oil production to maintain prices diminished following the rift between the two major OPEC countries, Saudi Arabia and Iran. Iran’s supreme leader had warned Saudi Arabia it would face “quick consequences” for the execution of the Shiite cleric. Consequently, more crude will be added to the already over-supplied market.
Surveys in China showed factory activity in the world’s second-largest economy shrank sharply in December, sparking a 7 percent slide in Chinese shares that triggered a trading halt. Given the importance of both Saudi Arabia and Iran to the global oil markets, it’s no great surprise that tension between them are spooking the markets.
The supply side continues to be dominated by producers’ unwillingness to cut output and that has led to a surplus of hundreds of thousands of barrels of crude every day as well as a price drop by two-thirds since mid-2014.
To make matters worse, China was forced to take emergency measures on Monday in order to prevent its stock market from collapsing during the first day of trading in 2016.
The oil cartel refused to moderate its production as members are concerned with holding their market shares and pushing out high-cost competitors rather than seeing the price go back up.
“Oil demand growth remains relatively strong heading into 2016 with a forecast gain of 1.2 million b/d for the year”, the report says. Output is not far below July’s 31.88 million bpd, the highest since Reuters records began in 1997.