Crude prices for February delivery plunged to settle $2/bbl lower on the New York market Jan. 6 while Brent prices settled $2.19/bbl lower in London. Analysts blamed falling prices on signs of an economic slowing in China, a major oil consumer.
Other factors behind oil price volatility included tensions between Saudi Arabia and Iran as well as growing US gasoline supplies.
Chinese stock markets have been very volatile, closing early twice this week. The Shanghai Composite Index stopped trading after about 30 min because a new safeguard mechanism to limit volatility was triggered. Chinese stock markets also halted early on Jan. 4 for similar reasons.
“Chinese equity markets temporarily halting again was like adding oil to fire, exacerbating the oil-price rout,” said Danial Ang, Phillip Future analyst.
Douglas-Westwood (DW) researcher Katy Smith said tensions between Saudi Arabia and Iran also are being closely followed by world oil traders and analysts.
Saudi Arabia said it is severing diplomatic ties with Iran after recent attacks on the Saudi Arabian embassy in Tehran in response to the execution in Saudi Arabia of a prominent cleric.
“This soaring political tension between the two most influential members of the Organization of Petroleum Exporting Countries has led to fluctuating oil prices,” Smith said, noting that Brent crude briefly reached $38.50/bbl, its highest level for 3 weeks, but then plunged again to touch below $33/bbl.
DW expects total oil production in Saudi Arabia to increase steadily over 6 years, reaching more than 12.1 million b/d in 2021. Following the signature of the Joint Comprehensive Plan of Action agreement in July 2015, and anticipated removal of international sanctions, Iran plans to increase its oil export volumes.
“Though the Iranian government has an ambitious target to raise its oil production to 5.7 million b/d by 2018, DW takes a conservative view,” she said. Uncertainty about the volume and timing of anticipated Iranian oil exports are influencing oil price forecasts, DW noted.
On Jan. 6, the Energy Information Administration reported US commercial crude oil inventories, excluding the Strategic Petroleum Reserve, decreased by 5.1 million bbl for the week ended Jan. 1 from the previous week.
But oil prices still were dragged down because the Petroleum Status Report showed US gasoline supplies experienced the biggest weekly increase since 1993 with a jump of 10.6 million bbl for the week ended Jan. 1, EIA said.
The NYMEX natural gas contract for February declined 5.8¢ to a rounded $2.27/MMbtu. The Henry Hub gas price rose 3¢ to $2.35/MMbtu on Jan. 6.
Heating oil for February delivery dropped 4.5¢ to a rounded $1.08/gal. The price for reformulated gasoline stock for oxygenates blending for February was down 9.5¢ to a rounded $1.16/gal.
The February ICE contract for Brent crude dropped $2.19 to $34.23/bbl, and the March contract was down $2.26 to $34.63/bbl. The ICE gas oil contract was $314.75/tonne on Jan. 6, down $14.50.
The average price for OPEC’s basket of 12 benchmark crudes for Jan. 6 was $31.21/bbl, down $1.50.
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