Oil dips below $30
In fact, the price of crude oil fell again after a rebound in the previous session, helping to push down energy stocks. Benchmark US crude fell $1.74 to $29.46 per barrel in New York. Brent crude, a benchmark for international oils, fell $1.31 to $29.57 per barrel in London.
Oil prices, which posted their first significant gains for 2016 on Thursday, hit 12-year lows as the prospect of additional Iranian supply put the market under renewed pressure. "With benchmark global oil prices taking a fresh hit on Friday, the market is bracing for more supplies from Iran earlier than expected," an oil expert said.
Petroleum and Mineral Resources Minister Ali Al-Naimi has said that growing global demand could absorb an expected jump in Iranian production this year.
The collapse in oil prices has spooked financial markets and battered an array of assets from commodity currencies to mining stocks as investors fret about the health of the global economy.
Discussing the impact of the falling oil prices on the Saudi and Gulf economies, Akber Naqvi, executive director at Al Masah Capital, said: "The impact has already been felt across all regional economies. Budgets have shrunk, revenues have dropped, spending is being curtailed, long standing subsidies are being scrapped and belts are being tightened across the board while some economies are already running budget deficits."
Naqvi added: "The impact of oil dropping $80 in 18 months is in full effect. To their credit, most governments anticipated this prolonged period of attrition and were proactive in their response, Saudi Arabia and the UAE being more aggressive than others. They also predicted this would last into the second half of 2016 after which oil would recover based on high cost producers' being eliminated and oversupply drying up. Let us see if their projections come true. In any case, regional economies are expecting drastically lower growth rates in the coming year and are adapting accordingly. The reemphasis on having diversified economies is becoming more pronounced."
James Reeve, deputy chief economist and assistant general manager, Samba Financial Group, commented: "Oil prices are not reflecting fundamentals. Prices of around $30 per barrel are not high enough to encourage future investment, in our view. Markets should recognize this in due course, particularly as more investment by international oil companies is shelved. Thus we think prices will rebound in the next few months."
Michael Hewson, chief market analyst at CMC Markets, was quoted by Reuters as saying: "There's an awful lot of uncertainty out there and oil prices continue to decline below that key $ 30 a barrel mark. The big question is where oil will bottom out and until we have some clarity on that, markets are going to remain exceedingly feral,"
With oil prices resuming their slide, investors continued to lower their inflation expectations, pushing down government bond yields.
The average price for a basket of crudes from OPEC producers fell to $25 a barrel on Thursday, even before unrestrained exports from Iran hit the market, Reuters reported. The Organization of the Petroleum Exporting Countries (OPEC) said the price of a basket of crudes produced by its 13 members was assessed at $25.69 on Wednesday.
OPEC's Reference Basket of Crudes (ORB) is made up of Saharan Blend (Algeria), Girassol (Angola), Oriente (Ecuador), Minas (Indonesia), Iran Heavy, Basra Light (Iraq), Kuwait Export, Es Sider (Libya), Bonny Light (Nigeria), Qatar Marine, Arab Light (Saudi Arabia), Murban (the UAE) and Merey (Venezuela).
Brent crude fell 3.5 percent to $ 29.82, while the US crude slid almost 5 percent to $29.70. Both were heading for a weekly loss of more than 10 percent following a similar tumble last week.
Coordinated oil production cuts with OPEC to support falling oil prices were unlikely and would be inefficient if they did happen anyway, Reuters quoted Russian Energy Minister Alexander Novak saying on Friday.
Novak's comments follow a meeting last month of the OPEC, which ended without any agreement on how to prop up prices and after some OPEC members urged Russia to cut its own oil output.
"From our point of view, it is unlikely that all the countries within OPEC can agree on production cuts, let alone those countries, which are not in the OPEC coalition," the RIA news agency quoted Novak as saying in an interview with RBC TV.
Commenting on the situation, BNP Paribas says: "We now see the price of WTI averaging $36 per barrel (-$ 14 per barrel revision) in 2016 and $44 per barrel (-$ 17 per barrel revision) in 2017. We see the price of Brent averaging $37 per barrel (-$ 17 per barrel revision) in 2016 and $46 per barrel ($ 19/bbl revision) in 2017. We expect a $ 30-40 per barrel range bound market for 2016.
Meanwhile, the question how low oil prices can go is increasingly engaging the attention as oil traders and Wall Street analysts who expect further declines in oil prices in the coming weeks. Some have predicted that prices will even approach $20 a barrel.
Ole Hansen, head of commodity strategy at Saxo Bank, came up with this answer: "Flip a coin is my answer... but I think we are finding some support at current levels. Selling fatigue has emerged after the price hit $30. The potential lifting of sanctions against Iran next week may attract some additional selling but overall the market will be looking to see whether they can actually deliver an increase of 500,000 barrels. A survey made by Bloomberg in which I participated sees only a gradual rise in production over the coming months and if that could potentially be supporting the price.
Crude oil has been falling during the first seven trading days of 2016 and demand concerns from China, the world's largest importer, added to the already negative sentiment being created by the global overhang of supply. The call for $20 oil has grown even louder during this time, resulting in continued selling from speculative traders already holding near record short positions and producers forced to hedge production. Some consolidation could now be seen, with $30 offering a decent line of support.
Jordi Rof, economist at Asiya Investments Company, says all Gulf economies are extremely sensitive to oil prices as they are not properly diversified. "The most immediate impact of low oil prices will be on government finance, as they will cause large deficits. However, the fiscal buffer is expected to absorb a significant part of the negative impact of low oil prices on real GDP. There are also positive consequences. Lower oil receipts will force Gulf governments to diversify their revenue sources and revise their often inefficient expenditure programs."
Downward pressure will accumulate on oil prices in the coming days, as Iran is expected to regain access to oil markets. The barrier of $20 now looks plausible. However, this low price is the direct consequence of a war for market share and unusually high production levels, and does not reflect long-term equilibrium. Prices will recover in the long term.