Oil prices fail to rise over Saudi, Iran face off

Oil prices slid yesterday, erasing early gains, as
fresh signs of an oversupplied crude market
trumped concerns about increased tensions in
the Middle East.
Light, sweet crude for February delivery recently
fell 41 cents, or 1.1%, to $36.63 a barrel on the
New York Mercantile Exchange. Brent, the global
benchmark, fell 20 cents, or 0.5%, to $37.08 a
barrel on ICE Futures Europe.
Prices climbed earlier yesterday on concerns
about increased tensions in the Middle East.
Rallies fueled by geopolitical concerns in the
past two years have quickly fizzled as traders
have bet that robust global production and ample
inventories would mute the effect of any
production outage. Heightened global unrest and
still-high oil output could stoke further volatility
in oil prices in the coming weeks.
Brent prices fell 35% last year, their third straight
annual loss, as a global supply glut showed few
signs of abating. U.S. prices posted a second
straight annual loss for the first time since 1998.
More than 18 months into the crude-price rout,
oil production remains high around the world as
producers compete for market share, keeping
global inventories high.
Saudi Arabia’s execution of a dissident cleric on
Saturday inflamed sectarian tensions, sparking
some worry among traders that crude output in
the world’s most prolific oil-producing region
could be threatened. Saudi Arabia and several of
its allies have severed or downgraded diplomatic
ties with Iran.
Bahrain and Sudan have severed diplomatic ties
with Iran in solidarity with Saudi Arabia. The
United Arab Emirates has downgraded its
diplomatic team.
Saudi Arabia produced 10.2 million barrels a day
of crude oil in November, or about 11% of global
output of crude and related liquids, according to
the International Energy Agency. Iran produced
2.9 million barrels a day of crude that month.
Some oil analysts and investors have argued for
months that the low price of crude doesn’t
adequately account for a possible supply
disruption due to violence or unrest. The oil
market has been vulnerable to sharp rebounds in
recent months as traders who had bet on lower
prices quickly reverse course.
Money managers including hedge funds added to
their bets that oil prices would fall in the week
ended Dec. 22, according to the most recent
data from the Commodity Futures Trading
Commission. Increased concerns about
geopolitical conflicts could have prompted some
traders to close out their bearish bets.
But further tension between Saudi Arabia and
Iran could also expand the global glut of crude
oil, weighing on prices, analysts said, as the two
producers compete for market share. Iran is
expected to increase its output by hundreds of
thousands of barrels a day this year if
international sanctions on the country are lifted,
and Saudi Arabia has already expressed its
unwillingness to cut production to make room for
Iranian barrels.
The heightened tensions with Saudi Arabia could
encourage Iran to accelerate its production
increases, analysts said.
“For the smaller and more cash-strapped
countries, such as Iran, every barrel they place in
the market counts because that’s how they can
get hard currency,” said Virendra Chauhan, an
analyst at consulting firm Energy Aspects.
United Nations (UN) Secretary-General, Ban Ki-
Moon yesterday urged Saudi Arabia and Iran to
avoid any actions that could further exacerbate
the situation between the two countries and in
the region.
Ban made the call in a telephone call he made to
Mr Abel bin Al-Jubeir, the Foreign Minister of
Saudi Arabia and Mr Mohammad Zarif, the
Iranian Foreign Minister.
According to a readout to UN correspondents in
New York, Ban stressed the importance of
continued constructive engagement by both
countries in the interest of the region and
beyond.
In his conversation with the Iranian foreign
minister, Ban recalled his statement on the
execution of Sheikh al-Nimr and 46 other
prisoners by Saudi Arabia on Saturday.
He further recalled his condemnation of the
attack at the Saudi embassy in Tehran and urged
the foreign minister to take the necessary
measures to protect diplomatic facilities in the
country.
Speaking with the Saudi Foreign Minister Al-
Jubeir, the secretary-general reiterated his views
on capital punishment and his disappointment
over the execution of al-Nimr, whose case he
said was raised by the Saudi authorities on
several occasions.
The secretary-general reiterated that the attack
on the Saudi Embassy in Tehran was deplorable.
Ban said that the announcement of a break in
Saudi diplomatic relations with Tehran was
deeply worrying.
Regarding Yemen, the UN scribe urged Saudi
Arabia to renew its commitment to a ceasefire.