Iran Adding to Global Oil Glut Dims Hopes for Recovery Next Year

  • Speculator long positions fall 1.2% in week to Dec. 22: CFTC
  • WTI crude drops to the lowest since February 2009 on Dec. 21

Investors are losing faith in an oil-price recovery next year as Iran prepares to add more crude to a global glut. That’s good news for American drivers who have enjoyed the lowest gasoline prices in six years.

Hedge funds reduced bets on rising prices to a three-month low and kept bearish wagers near a record high in the week ended Dec. 22, data from the U.S. Commodity Futures Trading Commission show. 

Oil fell to the lowest level in more than six years on Dec. 21 amid speculation suppliers from the Middle East to the U.S. will exacerbate a glut as they fight for market share. Iran, which expects sanctions over its nuclear program to be lifted by the first week of January, has secured customers for its planned supply expansion, an Iranian oil official said this month. U.S. pump prices have followed crude lower, giving consumers extra money to spend during the holidays.

“There’s every reason to be bearish,” said Tom Finlon, Jupiter, Florida-based director of Energy Analytics Group LLC. “As we approach the end of December, there’s more attention being paid to the expected return of Iranian barrels adding to the glut in supply.”

WTI fell 3.2 percent to $36.14 a barrel in the report week on the New York Mercantile Exchange. Futures rose 2.9 percent to $37.87 a barrel Tuesday.

The average price of regular U.S. gasoline slipped to 1.998 a gallon on Dec. 20, the first time below $2 since 2009, according to Heathrow, Florida-based AAA.

Iranian Priority

Iran’s priority is to boost shipments to pre-sanction levels, Oil Minister Bijan Namdar Zanganeh said, according to the state-backed IRNA news agency. The nation sees the potential for further oil-price declines as it plans to boost supply amid a lack of OPEC cooperation, said Roknoddin Javadi, head of National Iranian Oil Co., according to the Shana news agency. 

QuickTake Oil Prices

The Iranian government plans to add 500,000 barrels a day of exports within a week of the removal of sanctions and 1 million within six months, said Javadi, who is also the country’s deputy oil minister. 

“There are fundamental elements that will put downward pressure on the market during the new year,” said John Kilduff, a partner at Again Capital LLC, a New York-based hedge fund that focuses on energy. “The supply and demand outlook is negative.”

Speculators’ long positions in WTI fell by 3,198 contracts to 259,181 futures and options, CFTC data show. Shorts rose 3.4 percent to 172,258, just short of the all-time high reached earlier this month. Net-long positions fell 9.2 percent to 86,923.

Brent Crude

Money managers cut their bullish bets on Brent crude during the period. Speculators reduced net-longs 3.4 percent to 166,034 contracts, according to data from ICE Futures Europe.

In other markets, net bearish wagers on U.S. ultra low sulfur diesel decreased 5.3 percent to 39,172 contracts. Diesel futures slipped 5.2 percent in the period. Net bullish bets on Nymex gasoline slipped 9.7 percent to 21,385 contracts as futures declined 5.6 percent. 

WTI climbed to a three-week high on Dec. 24 after U.S. crude inventories declined and drillers idled rigs. Stockpiles should move higher in January because Gulf Coast refiners curb deliveries at the end of the year to reduce local taxes, Kilduff said.

“I wouldn’t be surprised if we start the year with an initial run to $40 before running out of steam,” Kilduff said. “The first half of the year will be tough. I think we should make new lows and drop below $30 when the refinery maintenance season begins.”

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