Oil goes to $US27 as Iran prepares to re-enter market

 Brent crude plunged over 4 per cent to under $US28 a barrel in early Monday trading, wiping billions off the value of Australian energy stocks, as OPEC member Iran prepares to re-enter the oil market after years of sanctions.

Australian stocks felt the full brunt of the price drop – which sent oil plunging to fresh 13-year lows of $US27.74 per barrel – with the overall sector down more than 3 per cent on Monday trade. Among individual stocks, Santos was down 8.3 per cent, Oil Search 5.1 per cent and Woodside 2.6 per cent.

However, the commodity bounced off its lows later in the session and regained almost all its losses, trading at $US28.67 by mid-afternoon. Brent had closed at $US28.94 on Friday.

On Sunday, Iran announced it would be targeting an immediate increase in shipments of 500,000 barrels a day,

Amir Hossein Zamaninia, deputy oil minister for commerce and international affairs, said on Sunday in an interview in Tehran, that his country planned to add another half million barrels within months.

“The oil ministry, by ordering companies to boost production and oil terminals to be ready, kicked off today the plan to increase Iran’s crude exports by 500,000 barrels,” the official Islamic Republic News Agency reported.

NAB economist Vyanne Lai said that the global economic turmoil had also played a role on depressing oil prices.

While the Iranian news was bearish for oil, it had also been long anticipated and priced in by the market, she said.

“The Iranian move had long been anticipated,” she said. “The downward movement in oil prices was exaggerated due to the current environment that we are seeing in the financial markets.

“It’s corresponded with the heightened concerns regarding China’s slowing, especially with the government’s erratic intervention in the financial markets.

“It sends a signal that they’ve lost the plot and it adds concerns for the market that perhaps they’ve control of policy.”

Ms Lai said that existing OPEC countries had made no statement that they would be cutting back production to accommodate the supply of Iran, also an OPEC member.

“OPEC is getting more opaque and convoluted. They’re not sending signs that anyone is willing to cut back production. They abandoned their official output quota in December, which muddles the situation even more.”

Ms Lai said the market was sensing that OPEC members were not “getting their act together”.

“The whole cartel’s effectiveness has been impinged because everyone’s looking out for themselves, to maximise their own interest.

She said that OPEC members had decided their best strategic move was to “pump as much oil as they can” to defend their market share rather than focusing on the collective good of the cartel.

Other analysts said prices would pick up later in the week.

Prices will probably show a “knee-jerk” reaction, falling on Monday before recovering to more than $US30 a barrel later in the week, Eugen Weinberg, Commerzbank’s head of commodities research in Frankfurt, said. “There is a real oversupply in the market, but I think that’s already reflected correctly in the price.”

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