Brent crude fell nearly two dollars in trading today, dipping below $35 per barrel for the first time since 2004 due to worries about weaknesses in the Chinese economy. This latest slide comes after markets made a brief recovery over speculations that heightened tensions between Saudi Arabia and Iran might affect oil production from OPEC’s two most important members. The FT reports:
A rift between Saudi Arabia and Iran over the execution of a prominent cleric saw Brent, the international oil benchmark, reach almost $39 a barrel on Monday.
But the rally was shortlived as the focus of traders and investors returned to the supply glut that has driven oil prices down 70 per cent since the middle of 2014.
In the past, the sort of open hostilities that we’ve been seeing between two petrostates would have spiked oil prices, but this time around prices only briefly jumped, before quickly settling to new lows. So what’s different? For one thing, ramped up tension between these two Middle Eastern rivals works as a kind of guarantee that OPEC won’t be able to coordinate (read: cut) production anytime in the near future, so traders don’t see the cartel working to limit the global glut of crude this year. And for another, the sheer amount of oil in the market is diluting the effect that potential disruptions might have on prices.
Take, for example, ISIS’s latest attacks on Libyan oil tanks in two of its biggest oil ports. As Reuters reports, five tanks are on fire. The ports under attack haven’t exported oil for more than a year, but the fact that ISIS is now targeting them suggests that Libyan supplies—which in 2011 hit a high of 1.11 million barrels per day—are that much less likely to be coming back online anytime soon.
And yet, nevertheless, on the heels of these attacks and with Riyadh and Iran at loggerheads, oil is hitting new lows. Due in large part to the flood of new crude brought on by the American shale revolution, today’s oil market is behaving very differently from what we’ve been accustomed to in the past.