Brent Trades Near 12-Year Low as Iran Comeback to Swell Glut

Oil Under $28: Counting the Cost
  • Iran's sanctions relief frees country to ramp up exports
  • OPEC sees deeper decline in rivals' supply as U.S. falters

Brent crude traded near a 12-year low in London, briefly dipping below $28 a barrel, as the lifting of international sanctions on Iran paves the way for increased supply amid a global glut.

Futures fell 1.3 percent after earlier dropping as much as 4.4 percent in London to the lowest since November 2003. Iran is beginning efforts to boost output and exports by 500,000 barrels a day now that restrictions have ended, Amir Hossein Zamaninia, deputy oil minister for commerce and international affairs, said Sunday. Saudi Oil Minister Ali al-Naimi dismissed supply concern with a forecast that prices will recover.

“Clearly, what is happening is that markets are continuing to be quite anxious about the possibility that we will see Iran bring back quite a bit of oil,”  Bart Melek, the head of commodity strategy at TD Securities in Toronto, said in a telephone interview. “This probably is a little quicker than people thought.”

Brent capped a third annual loss in 2015 as the Organization of Petroleum Exporting Countries effectively abandoned output limits. Iran, which was OPEC’s second-biggest producer before sanctions were intensified in 2012, is trying to regain its lost market share and doesn’t intend to pressure prices, officials from its petroleum ministry and national oil company said this month.

Iranian Exports

Oil at $50-60 in Three Years: Dvorkovich

Brent for March settlement fell as much as $1.27 to $27.67 a barrel on the London-based ICE Futures Europe exchange and settled at $28.55. Front-month prices declined 14 percent last week for a third weekly drop. The European benchmark crude was at a discount of $1.43 to West Texas Intermediate for March.

WTI for February delivery fell as much as $1.06, or 3.6 percent, to $28.36 a barrel in electronic trading on the New York Mercantile Exchange, where the floor is closed for the federal holiday honoring Martin Luther King Jr. Trades will be booked Tuesday. The contract slid $1.78 on Friday. Prices have lost 21 percent this year.

Buyers of Iranian crude are free to import as much of it as they want after the International Atomic Energy Agency determined that the country had curbed its ability to develop a nuclear weapon. As holder of the world’s fourth-largest reserves of crude and biggest deposits of natural gas, the nation gains immediate access to about $50 billion in frozen accounts overseas, funds the government says it will use to rebuild industries. Hellenic Petroleum SA will meet Iran oil officials Friday to discuss crude oil imports from Iran, Reuters said, citing a person from the company.

“There is no more if about Iran coming back,” Carl Larry, director of business development with Frost & Sullivan, said in a phone interview from Houston. “They are coming back and now we have that supply to deal with.”

Saudi Outlook

Iran will be able to increase oil production by 100,000 barrels a day, or 3.7 percent, a month after sanctions are lifted and by 400,000 in six months, according to the median estimate of 12 analysts and economists surveyed by Bloomberg. The Persian Gulf nation is OPEC’s fifth-biggest producer.

Saudi Arabia’s al-Naimi said Sunday that crude prices will rise and market forces and cooperation among producing nations will lead in time to renewed stability.

He declined to comment on how the removal of economic sanctions against Iran might affect prices. Saudi Arabia is the world’s biggest crude exporter, pumping 10.25 million barrels a day in December, according to data compiled by Bloomberg.

Production outside OPEC will drop by 660,000 barrels a day this year, the group said Monday in its monthly market report, deepening the decline from its previous estimate by 270,000 barrels a day.

Speculator Bets

Hedge funds last week increased bearish oil wagers to a record as global equities fell and sanctions on Iran were poised to end. Speculators’ short position in WTI rose 15 percent in the period ended Jan. 12, data from the U.S. Commodity Futures Trading Commission show. It’s the highest in records dating back to 2006. Net-long positions fell to the lowest in more than five years.

For Brent crude, speculators increased their bullish stance to the highest since October, raising net-long positions by 17,507 contracts to 202,559, according to data released on Monday by ICE Futures Europe.

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