Oil Digests Oversupply vs. Geopolitical Tension

Oil Digests Oversupply vs. Geopolitical Tension

Both crude benchmarks showed strong gains on the first trading day of 2016, with the mood influenced by a worsening of diplomatic ties between Saudi Arabia and Iran, a fall of the US dollar and the current global oil surplus.

Futures for WTI rose 0.57% to trade at $37.25 per barrel, while Brent futures gained 1.53% to $37.85 per barrel.

Early on Sunday, Iranian protesters stormed Saudi Arabia’s embassy in Tehran while protesting the execution of the Shia Muslim cleric Sheikh Nimr al-Nimr, convicted of terror-related offenses.

Saudi Foreign Minister Adel al-Jubeir stated that all Iranian diplomats must leave the country within 48 hours.

Saudi Arabia would not let Iran undermine its security, Jubeir said, adding that Iran distributed weapons and planted terrorist cells in the region.

The countries are OPEC’s two most powerful members and the recent diplomatic rift could worsen prospects for any cartel agreement to regulate production.

“Whatever plan we come will up with, if there is one, Iran will oppose it especially after what just happened. For them it is politics,” one oil industry official stated.

Saudi Oil Minister Ali al-Naimi said last week the country won’t change it’s current oil production policy despite weak oil prices.

Iran is expected to boost its oil production once Western economic sanctions against the country are lifted, which could happen in the coming weeks. The step is forecast to worsen the already huge global crude surplus.

US crude stockpiles jumped by 2.629 million barrels in the week to December 25, following the 5.877 million barrel plunge seen in the previous week. The market had bet on a fall of 1.767 million barrels.

Fresh weekly stockpiles data will be released by the US government on Wednesday, while the American Petroleum Institute will unveil its weekly figures on Tuesday.

Meanwhile, a weakening US dollar index boosted demand for oil, as it makes dollar-denominated commodities cheaper in other currencies.


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