Tension between Saudi Arabia and Iran isn't enough to help oil prices

DALLAS - It turns out that thanks to a glut of crude, even tension between two big oil-producing countries isn't enough to drive prices higher.

See Full Article

Oil futures spiked briefly on Monday after the news that Saudi Arabia would cut diplomatic ties with Iran, a development that could be seen as a threat to oil supplies.

Investors quickly discounted those fears, however. After rising by $1.35, the price of benchmark U.S. crude ended the day down 28 cents to $36.76 a barrel on the New York Mercantile Exchange. Brent crude, reflecting the price of international oils, dipped 6 cents to close at $37.22 a barrel in London.

While oil markets were see-sawing, stock markets sagged on evidence that the global economy might be weaker than expected this year. The Dow Jones industrial average lost 276 points, or 1.6 per cent, and was down 468 points earlier in the day.

New reports indicated that manufacturing is continuing to struggle, with factory activity falling in December for the second straight month in the U.S. and the 10th straight month in China.

Slow growth means that the current oversupply of oil could be more stubborn than expected. Government figures show that the stockpile of U.S. crude oil grew by 2.6 million barrels during the week ended Dec. 25 and were 9.9 million barrels higher than a year ago.

Oil prices are likely to remain about where they are until either production drops or the world economy perks up and drives demand higher.

Investors may have regarded the flash of tension between the Saudis and the Iranians over Saudi Arabia's execution of an opposition Shiite cleric as merely saber-rattling. Stewart Glickman, an analyst with S&P Capital IQ, said geopolitical risk has lost some of its ability to influence on oil prices.

"It is maybe a sense of security from the marketplace that with this seeming glut of crude oil that you can have tensions in Middle East and they don't count for as much as they used to three or four years ago," he said in an interview.

The explanation lies partly in robust production from the U.S., Glickman said. Saudi officials are reluctant to cut production in a bid to raise prices because they'll just concede sales to U.S. producers who will fill the void in supply.

Iran wants to regain some oil exports that it lost while under economic sanctions, soon to be lifted, for its nuclear program. Judith Dwarkin, chief economist at ITG Investment Research, said that the confrontation with Saudi Arabia makes the Saudis unlikely to offset Iranian increases by trimming their own production - potentially adding to the glut.

Then there is the question of demand. Weak manufacturing numbers and a plunge in the Shanghai Composite stock index raised new concern about energy demand in China, the world's second-biggest economy.

The U.S. Energy Information Administration forecasts that the average price of U.S. benchmark crude this year will rise about 4 per cent over 2015.

If that is correct, American motorists will continue getting a break on gasoline compared with prices not long ago. On Monday, the nationwide average price for a gallon of regular was $1.99, according to the auto club AAA - 22 cents cheaper than a year ago.

The Energy Information Administration estimates that the average U.S. household saved about $660 on cheaper gasoline last year, compared with 2014.



Advertisements

Latest Economic News

  • Economists meet with Alberta officials, say worst appears to be over

    Economic CTV News
    EDMONTON - Alberta Finance Minister Joe Ceci met with key economists to look ahead to 2017, with the consensus being the worst is over for the provincial economy. But Avery Shenfeld, chief economist of CIBC, says how much things will improve is still up in the air and tied to the price of oil. Source
  • Dow Jones, S&P 500 rallies to record highs; TSX racks up 100 points

    Economic CTV News
    TORONTO -- Major North American stock markets pushed higher, with the Dow Jones and S&P 500 hitting record levels, as anticipation builds over the corporate policies of U.S. president-elect Donald Trump. In New York, the Dow Jones industrial average surged 297.84 points at 19,549.62, while the S&P 500 added 29.12 points at 2,241.35. Source
  • Bovine TB: More cattle quarantined, but officials 'optimistic' worst is over

    Economic CTV News
    OTTAWA - The quarantine of cattle in a western Canada bovine tuberculosis outbreak continues to grow, even as no new confirmed cases of the disease have been found. Officials say, however, they are cautiously optimistic that the number of animals quarantined may have peaked. Source
  • Commercial real estate sales hit quarterly record as investors hunt yields

    Economic CTV News
    CALGARY - Real estate firm CBRE says Canada hit a record level for commercial real estate sales in the third quarter and is on track to beat an annual record set during the 2007 boom. Source
  • Moose Knuckles reaches deal with Competition Bureau over 'Made in Canada' claims

    Economic CTV News
    OTTAWA -- Winter jacket maker Moose Knuckles has reached a deal with the Competition Bureau regarding concerns over its advertising and labelling of certain parkas that are promoted as made-in-Canada. Under the agreement, reached through mediation, the company has agreed to donate $750,000 over five years to charities in Canada, such as those that provide winter coats to children in need. Source
  • Starbucks to boost number of shops, add more food to menu

    Economic CTV News
    NEW YORK -- Starbucks, looking to the future as its longtime CEO moves to other projects, plans to open 12,000 new locations within five years to boost its number of coffee shops worldwide by almost 50 per cent. Source
  • TransCanada to proceed with $655-million northern Alberta natural gas pipeline

    Economic CTV News
    CALGARY -- TransCanada Corp. says it's moving ahead with a $655-million expansion of its Nova Gas Transmission Ltd. system in northwestern Alberta. The company (TSX:TRP) says the Saddle West Expansion Project will add 29 kilometres of pipeline capacity to existing routes, as well as five compressor units, that together will increase the capacity of the system by about 355 million cubic feet per day. Source
  • N.B. to phase out coal, put price on carbon in new climate plan

    Economic CTV News
    FREDERICTON -- The New Brunswick government will phase out coal as an electricity source under a new climate change plan that also puts a price on carbon. Premier Brian Gallant said Wednesday that climate change is the most important issue to face humankind in modern times and New Brunswick must do its part to combat it. Source
  • Starbucks planning to add 12,000 new outlets around the world

    Economic CBC News
    Starbucks plans to add 12,000 new locations over the next five years. (David Horemans/CBC News) Starbucks plans to open 12,000 new locations within five years, boosting the total number of its coffee shops worldwide by almost 50 per cent. Source
  • WestJet pilots union drive takes flight again

    Economic CBC News
    The Air Line Pilots Association has formalized its drive to unionize pilots at WestJet. After months of laying the groundwork, the U.S.-based international union said in a letter to pilots that it is collecting membership cards, and warns about a pushback from the Calgary-based airline. Source