US crude yesterday tumbled below US$31 a barrel, extending a sell-off that has pushed it to more than 12-year lows amid a global supply glut, a strong dollar and tepid demand.
West Texas Intermediate (WTI) for delivery next month was down US$0.87, or 2.77 percent, to US$30.54 per barrel at about 6:30am. European benchmark Brent crude fell US$0.98, or 3.11 percent, to US$30.57.
The last time prices were so low for WTI was in December 2003 and in April 2004 for Brent. WTI touched a low of US$29.66 in December 2003 and Brent in April 2004 hit US$29.95.
Prices plummeted 10 percent last week as investors grew concerned about the global supply glut and weakness in key market China, the world’s biggest energy user.
Potential geopolitical risks, including the escalating Saudi Arabia-Iran row, are also keeping traders on edge.
The rise in the greenback, which makes dollar-priced oil more expensive for holders of weaker currencies, was also a key factor in yesterday’s price decline, analysts said.
“The drop mainly comes from the increasing dollar strength... That accounts for the bulk of the movement,” Phillip Futures investment analyst Daniel Ang said.
However, Ang said he did not think prices would breach the US$30 psychological support barrier.
“We may see some bearishness in the short term where prices may continue falling a little bit but I think they will remain highly supported [at US$30],” he said.
The market is also bracing for new crude supplies from Iran once Western economic sanctions on the country are lifted under a deal struck last year to curb Tehran’s nuclear program.
This could bring another 1 million barrels of oil per day on to the already saturated global market within months.
“When you have a supply overhang, there’s going to be continued downward pressure on prices,” said Ric Spooner, a chief analyst at CMC Markets in Sydney.
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