January 5, 2016
Crude Oil gained 35 cents to 37.40 while Brent Oil added 59 cents to 37.87 as tensions in the Middle East stressed markets. The Saudi – Iran tensions continued to escalate with Saudi Arabia severing diplomatic ties with Iran and Russia offering to intercede as peace maker. During the Asian session overnight the US and international benchmarks rose as much as 3.4 and 2.4 per cent respectively compared to where they had ended 2015, touching close to $38.50 a barrel. But gains were later pared and Brent crude, which determines prices paid around the world including for oil exported from the North Sea, was up just 0.4 per cent to $37.40 a barrel this morning.
The initial rise had been prompted, says CNBC, by the latest flare up between Saudi Arabia and Iran. Following the execution of a senior Shiite Muslim cleric in Sunni-controlled Saudi Arabia, angry Iranians attacked the Saudi embassy in Tehran. This prompted the Saudi government to announce it was severing ties with its rival, with which it has been engaged in a range of proxy conflicts of late across the region.
Benchmark oil and natural gas prices have also slumped, down a third this year and two thirds since the rout began in 2014, as ballooning supply met slowing demand.
“Headwinds [are] growing for 2016 oil,” Morgan Stanley said this week, citing increases in global supply and a slowdown in demand, reflecting a market consensus that meaningfully higher prices are not expected before late 2016
The outlook is expected to trigger a fight for survival across the supply chain, including shippers and private oil drillers, while oil-dependent countries from Venezuela and Russia to the Middle East face smaller revenues.