Oil plumbs new low as Iran seen deepening global glut

Oil dropped to a new 12-year low below $US30 a barrel in New York, while the discount on global benchmark Brent reached a five-year high as Iran moved closer to restoring exports.

West Texas Intermediate crude fell as much as 6.2 per cent and is down more than 10 per cent for the week. The grade slipped below $US30 a barrel on Tuesday for the first time since 2003. Sanctions on Iran may be lifted soon, allowing for a boost in oil shipments from OPEC’s fifth-biggest member. Prices are down on Iran and concern about China’s economy, according to Daniel Yergin, vice chairman of industry consultants IHS Inc.

“The plans by Iran to up exports by a fifth later this month once the sanctions are lifted is the last thing this market needed,” said John Kilduff, a partner at Again Capital LLC, a New York-based hedge fund that focuses on energy. “There’s got to be a bottom someplace but we haven’t hit it yet.”

Crude capped a second annual loss in 2015 as OPEC effectively abandoned output limits amid a global surplus. The price decline is affecting producers with BHP Billiton expecting to book a $US4.9 billion writedown on its US shale assets, BP announcing a further 4000 job cuts and Petroleo Brasileiro slashing its spending plan.

Brent for March settlement dropped $US1.44, or 4.7 per cent, to $US29.44 a barrel on the London-based ICE Futures Europe exchange. Futures touched $US29.30, the lowest since February 2004. Brent dropped below $US30 Wednesday for the first time since April 2004. The European benchmark discount widened to as much as $US1.08 to March WTI, the biggest gap since 2010.

WTI for February delivery fell $US1.75, or 5.6 per cent, to $US29.45 a barrel at 11.14am on the New York Mercantile Exchange. The contract touched $US29.28, the lowest since November 2003. Total volume traded was 33 per cent higher than the 100-day average. Prices have lost 20 per cent this year.

Iran is trying to regain lost market share and doesn’t intend to pressure prices with an export increase once sanctions are removed, officials from its petroleum ministry and national oil company said this month.

“Everybody was racing to get this done,” Yergin, a Pulitzer Prize-winning oil historian said on Bloomberg Television. “It does mean that it’s coming to the market at a time of much greater weakness than originally thought, which was March or April.”

Oil will turn into a new bull market before the year is out as the price rout shuts down sufficient production to erode the global glut, according to Goldman Sachs Group. The boom in US shale-oil production should reverse in the second half of the year, the bank said in a report. As US production slumps by 575,000 barrels a day, global oil markets will tip from surplus to deficit, Goldman predicts.

“The key theme for 2016 will be real fundamental adjustments that can re-balance markets to create the birth of a new bull market, which we still see happening in late 2016,” analysts Jeff Currie and Damien Courvalin wrote.

Gasoline for February delivery dropped 2.7 per cent to $US1.0396 a gallon and earlier touched $US1.0301, the lowest since February 2009. Diesel for February delivery decreased 3.6 per cent to 94.54 cents, after reaching 94.45, the least since May 2004.

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