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Oil prices gain on Saudi-Iran diplomatic tensions Oil prices swing rapidly amid Saudi-Iran diplomatic tensions
(about 11 hours later)
Oil prices rose strongly as tension between Saudi Arabia and Iran increased after the kingdom executed a prominent Shia Muslim cleric. Oil prices swung rapidly on Monday, first rising on tension between Saudi Arabia and Iran before fears about the strength of the global economy drove prices lower.
Brent crude oil futures rose 3.3% to $38.50 a barrel, the global benchmark’s highest price for about three weeks. Brent crude oil futures rose 3.3% to $38.50 a barrel at one stage, the global benchmark’s highest price for about three weeks, after Saudi Arabia executed a prominent Shia Muslim cleric.
However, the weak economic data coming out of China triggered fears about a downturn in economic growthand sentiment about the world economy was knocked further by figures coming out of the US.
By the end of the day in London, Brent was down 13 cents at $37.14.
Late last month, the price hit its lowest level for 11 years, touching $36.05 (£24.22) a barrel, its lowest since 2004 and below the low point reached during the financial crisis of 2008-09. Then the concern was bout the impact on supply from the lifting of sanctions on Iran which could push down prices further.
The tensions between Saudi Arabia and Iran was also sparking questions about the implications for oil production. Some analysts were suggesting the Iranians might export more oil once sanctions are lifted, adding to the world’s oversupply of the commodity. But, others said Saudi output in its eastern province could be jeopardised by unrest in the region, which could knock its output.
Ric Spooner, an analyst at CMC Markets in Sydney, said there was no imminent threat to oil production but that the dispute was a cause for concern. “It may be seen by the market as an incremental step in a possible longer-term escalation of problems in the core oil producing nations of Saudi Arabia and Iran,” he told Bloomberg News.Ric Spooner, an analyst at CMC Markets in Sydney, said there was no imminent threat to oil production but that the dispute was a cause for concern. “It may be seen by the market as an incremental step in a possible longer-term escalation of problems in the core oil producing nations of Saudi Arabia and Iran,” he told Bloomberg News.
Saudi Arabia cut diplomatic ties with Iran after protesters attacked its embassy in Tehran on Saturday, setting fire to the building. The onslaught was triggered by the execution of Sheikh Nimr al-Nimr, a critic of the Saudi monarchy. He was killed with 46 others accused of terrorist offences.Saudi Arabia cut diplomatic ties with Iran after protesters attacked its embassy in Tehran on Saturday, setting fire to the building. The onslaught was triggered by the execution of Sheikh Nimr al-Nimr, a critic of the Saudi monarchy. He was killed with 46 others accused of terrorist offences.
The Saudi foreign minister, Adel al-Jubeir, said Shia-ruled Iran’s diplomatic staff in Saudi Arabia had been given 48 hours to leave the Sunni-led kingdom. The dispute is the worst crisis between the regional powers, led by competing sects of Islam, since the 1980s.The Saudi foreign minister, Adel al-Jubeir, said Shia-ruled Iran’s diplomatic staff in Saudi Arabia had been given 48 hours to leave the Sunni-led kingdom. The dispute is the worst crisis between the regional powers, led by competing sects of Islam, since the 1980s.
Saudi Arabia and Iran are the most powerful members of the Organisation of the Petroleum Exporting Countries (Opec) and are battling for regional influence. Analysts have said the removal of western sanctions against Iran will add to global oil reserves.Saudi Arabia and Iran are the most powerful members of the Organisation of the Petroleum Exporting Countries (Opec) and are battling for regional influence. Analysts have said the removal of western sanctions against Iran will add to global oil reserves.
Oil rose despite weak manufacturing data from China that caused European shares to fall. Brent crude fell 35% last year as demand from China slowed and Opec, led by Saudi Arabia, maintained production despite a growing global oil glut. Last month, Opec decided to stick with its policy of not constraining output. Key members of the cartel – effectively led by Saudi Arabia – have kept the pumps on overdrive in an effort to maintain market share and pressure high-cost producers in other parts of the world. Some say the strategy has been formulated with a view to wrecking the shale gas industry in the US, which has gone a long way to providing energy independence to the region.
The Opec meeting last month highlighted the growing discord between Riyadh and Tehran. Iran has called for action to stem the drop in oil prices but its requests have been rebuffed by the kingdom, which is the world’s largest oil exporter.
The political tensions between Saudi Arabia and Iran will result in oil prices becoming more unpredictable, which will likely affect other asset classes, including bonds, said Sharon Stark, chief fixed income strategist at DA Davidson & Co in Florida.
Oil initially rose despite weak manufacturing data from China that caused shares across the world to fall.
The severe fall in the price of oil over the past year claimed another casualty on the first working day of the new year as Swift Energy, an independent oil and gas group with operations in Louisiana and Texas in the US (and more than $1.2m of debt), filed for bankruptcy.