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Oil stays under pressure as Iran orders sharp rise in crude output
[SINGAPORE] Oil futures remained under pressure on Tuesday following a slide that has seen prices fall by more than a quarter since the beginning of the year as the full return of Iran to oil markets adds to an already huge supply overhang.
US crude futures were trading at $29.14 a barrel by 0249 GMT, down 28 cents from their last settlement.
Front-month Brent crude futures remained below US$29 per barrel at US$28.84 per barrel after rising slightly in Tuesday's trade.
Traders said that the diverging movements between Brent and WTI crudes was largely due to technical trading in order to get the two benchmarks back slightly closer together.
The US premium over Brent CL-LCO1=R hit its highest level since 2010 on Monday as Iran's oil will be exported to Brent-priced Europe and Asia while regulations still restrict it from going to the United States.
The US government has also revoked a 40 year old ban on its crude reserves, resulting in oil flows out of the U.S. crude price zone and into Brent.
Prices fell to their lowest since 2003 on Monday as western sanctions against Iran were lifted. Tehran then ordered a sharp increase in output to take immediate advantage. "It is clear that investor sentiment is driving oil prices... Bearish bets are at their highest level since 1983, indicating heightened concerns around Iran oil flooding the market," ANZ bank analysts said in a note on Tuesday.
Oil prices have fallen over 70 per cent in the past 18 months as exporters around the world pump out over a million barrels of crude every day in excess of demand. Since January, the prospect of the lifting of the sanctions on Iran accelerated the rout.
Most analysts expect Iran's full return to oil markets to be relatively slow due to the need to overhaul its infrastructure following years of under-investment, but Iran is also estimated to have stored 12-14 million barrels of crude and 24 million barrels of condensates for immediate sale.
Goldman Sachs said that Iran's production would rise by 285,000 barrels per day (bpd) year-on-year in 2016 while BMI Research said the rise would by 400,000 bpd.
In OPEC-member Venezuela, state-owned producer PDVSA requested partners to pay for naphtha imports, which it is contractually obliged to provide itself, to produce exportable crudes.