Oil slides to lowest since 2003 as Iran sanctions lifted
SINGAPORE: Oil prices hit their lowest since 2003 on Monday, as the market braced for a jump in Iranian exports after the lifting of sanctions against the country over the weekend.
The United Nations nuclear watchdog on Saturday said Tehran had met its commitments to curtail its nuclear programme, and the United States (US) immediately revoked sanctions that had slashed Iran's oil exports by around 2 million barrels per day (bpd) since its pre-sanctions 2011 peak to little more than 1 million bpd.
On Sunday, Iran ─ a member of the Organization of the Petroleum Exporting Countries (Opec) ─ said it was ready to increase its exports by 500,000 bpd.
"Iranian exports come at a very bad time," said Barclays analysts.
A chronic global surplus of a million barrels or more of crude daily has pulled down oil prices by over 75 per cent since mid-2014 and by over a quarter since the start of 2016.
Worries about Iran's return to an already glutted oil market drove down Brent to $27.67 a barrel early on Monday, its lowest since 2003.
The benchmark was at $28.55 by 0523 GMT, still down over 1pc from its settlement on Friday.
US crude was down 38 cents at $29.04 a barrel, not far from a 2003-low of $28.36 hit earlier in the session.
However, traders and analysts described the plunge in prices as a kneejerk reaction, saying Iran's ambitions to export 500,000 bpd were not very realistic.
"If you track Iran's rhetoric over the past 12-18 months, officials were projecting a 1 million bpd rise in exports as soon as sanctions were lifted," said analyst Virendra Chauhan at Energy Aspects, adding that the most recent downgrade in the number is indicative of the challenges that face Iranian upstream and the markets capacity to absorb its supply.
Analysts expect Iran to take time to fully revive its export infrastructure that has suffered from years of underinvestment.
But the Opec member does have at least a dozen Very Large Crude Carrier super-tankers filled and in place to sell into the market, and traders are betting that oil prices will drop some more.
Data shows that short positions in US crude markets , which would profit from further price falls, have hit a fresh record high.
"Since the market is strongly one dimensional with net shorts at an all-time high," it could face further downside potential in the short term as "investors would be cautious of catching the falling knife", analyst Chauhan said.
Asian shares drop to 2011 levels as oil slump intensifies
Asian shares slid to their lowest levels since 2011 on Monday after weak US economic data and a massive fall in oil prices stoked further worries about a global economic downturn.
Spreadbetters expected a subdued open for European shares, forecasting London's FTSE to open modestly higher while seeing Germany's DAX and France's CAC to start flat-to-slightly-weaker.
Crude prices faced fresh pressure after international sanctions against Iran were lifted over the weekend, allowing Tehran to return to an already over-supplied oil market.
Brent oil futures fell below $28 per barrel, touching their lowest level since 2003.
"Iran is now free to sell as much oil as it wants to whomever it likes at whatever price it can get," said Richard Nephew, program director for Economic Statecraft, Sanctions and Energy Markets at Columbia University's Center on Global Energy Policy.
MSCI's broadest index of Asia-Pacific shares outside Japan fell to its lowest since October 2011 and was last down 0.5pc.
Japan's Nikkei tumbled as much as 2.8pc to a one-year low. It has lost 20pc from its peak hit in June, meeting a common definition of a bear market.
The volatile Shanghai Composite index initially pierced through intraday lows last seen in August before paring the losses and was last up 1 percent. It was still down 17pc this month.
On Wall Street, S&P 500 hit a 15-month low on Friday, ahead of Monday's market holiday.
"The fact that US and European shares fell below their August lows, failing to sustain their rebound, is significant," said Chotaro Morita, chief fixed income strategist at SMBC Nikko Securities.
"We are coming to a stage where we need to consider the risk of recession in the global economy," he said.
An unexpected drop in retail sales and the third consecutive monthly fall in industrial output in December added to the latest indication that US economic growth braked sharply in the fourth quarter.
Following that data, the Atlanta Federal Reserve's closely-watched GDPNow forecast model showed the US economy is on track to grow 0.6pc in the fourth quarter, slowing sharply from 2.0pc growth in the third quarter.
Investors further cut back their Fed rate hike expectations, with short-term interest rate futures pricing in only one rate hike by the end of year, compared with two hikes priced in at the start of year.
Outside the US, the economic outlook appeared even bleaker, with the energy and raw material sector hit the hardest as China's massive investment-led economy slows down. MSCI's emerging stock index has dropped to 6-1/2-year lows.
"The biggest focus is oil prices. Oil producing countries have to sell their assets to finance their budget gaps. They are selling shares around the world," said Norihiro Fujito, senior investment strategist at Mitsubishi UFJ Morgan Stanley Securities.
In currency markets, commodity-linked units were hit hard, with the Canadian dollar hitting its lowest in nearly 13 years.
The safe-haven yen gave up some of its gains after having risen to a five-month high of 116.51 to the dollar on Friday. It last stood at 117.21. The euro also edged down against the dollar to $1.0893.
The Chinese yuan rose 0.6pc in the offshore trade to 6.5808 to the dollar, however, as Chinese authorities continued to stamp down speculative yuan selling.
China will start implementing a reserve requirement ratio (RRR) on some banks involved in the offshore yuan market, the People's Bank of China (PBOC) said on Monday, in what appears to be its latest attempt to stem speculation in the currency.
Steps to stabilise the yuan gave battered copper prices some breathing room. Three-month copper on the London Metal Exchange climbed 1.4pc to $4,390 a tonne, paring losses from Friday when prices touched their weakest since May 2009 at $4,318 a tonne.