(TRUNEWS) The price of crude oil fell to a 2004 low of $34.27 on Wednesday, amid exploding tensions between Iran and Saudi Arabia over the execution of Saudi Cleric Sheikh Nimr al-Nimr.
The cleric killed was an outspoken critic of the Saudi government, calling for more rights for the country’s marginalized Shiite community, the majority islamic sect in Iran.
Iran’s Islamic Revolutionary Guard Corps (IRGC) condemned the killing, proclaiming that “without a doubt, the hated Saudi regime will pay a price for this shameful act.”
A day after the IRGC issued its heated statement, describing the rulers of Saudi Arabia as “terrorist-fostering, hated and anti-Islam”, Riyadh broke off diplomatic relations with Tehran.
The latest round of conflict between Iran and Saudi Arabia not only severely diminishes the chances of the cartel agreeing to a formal production target when the group meets again this summer, but effectively concedes any pretense of control over the global oil market, especially after Opec failed to come up with a ceiling for output for the first time in recent history at its December meeting last year.
Brent crude, the world’s benchmark for oil, spiked briefly to $39 on Monday, following the kingdom’s decision to behead the popular religious leader, who was one of 47 people executed on Saturday. However, traders seemingly shrugged off the prospect of a new bout of geopolitical risk choking production from the Middle East. Instead, renewed fears about record over-supply saw prices fall sharply for the third consecutive day of trading.
The US benchmark, West Texas Intermediate, also posted a decline to $34.25, after new data showed supplies for WTI in Cushing, Oklahoma had climbed to an all-time high of 63.9million.
To make matters worse, Iran is likely to add to the world’s oil glut when western-imposed sanctions are lifted later in the year. An additional 500,000 barrels a day will be contributed to the world’s supply by Iran within weeks of the trade obstacles being loosened.
Even with these looming challenges, Saudi Arabia’s oil minister has promised to continue pumping, as the monarchy expects global demand to pick up in 2016, and non-Opec producers, including the rival US shale sector, to tail off by the second part of the year.
Analysis conducted by Alia Moubayed, the Director and Senior Economist on the Middle East at Barclays Capital, agreed with the Saudi’s forecast, commenting that “with relations between Opec kingpins Saudi Arabia and Iran at a historic low point, it solidifies an already-unlikely scenario that Opec might cut output.”
The post Oil Below $35: Opec Loses Control Amid Cold War Between Iran, Saudi’s appeared first on TRUNEWS with Rick Wiles.
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