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 After closing higher for the first time in eight sessions on
Thursday, U.S. and Brent crude futures plumbed new lows, taking this
year's losses to more than 20 percent, the worst two-week decline
since the 2008 financial crisis.
The slump was not over yet, some analysts warned, as the lifting of
sanctions on Iran opens the door to a wave of new oil. The
International Atomic Energy Agency (IAEA) is expected on Saturday to
issue its report on Iran's compliance with an agreement to curb its
nuclear program, potentially triggering the lifting of Western
sanctions.
Shares in China, the world's No. 2 oil consumer, tumbled on Friday,
with the Shanghai index ending down 3.5 percent to its lowest close
since December 2014 and the yuan weakening sharply offshore. Adding
to fuel demand concerns, U.S. data showed retail sales fell and
industrial production weakened in December.
Brent <LCOc1> settled down $1.94, or 6.3 percent, at $28.94 a
barrel, sticking below the pivotal $30 a barrel mark after briefly
dipping below that level in the previous two days. It fell as far as
$28.82, the lowest since February 2004.
U.S. crude <CLc1> ended $1.78, or 5.7 percent, lower at $29.42,
after hitting a contract low of $29.13, its lowest since November
2003, earlier in the session.
The oil market is oversold after two weeks of almost unrelenting
selling, some traders said. The relative strength index (RSI) fell
this week to below 30, a technical level often regarded as signaling
a market that has fallen too far.
Bearish traders may rush to take profits on short positions next
week. Short positions in the U.S. contract rose to a record of more
than 200 million barrels in the week to Jan. 12, according to U.S.
data.
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"I think we will see a hard bounce in crude oil - two, three, four
dollars back up into the mid 30s," said Phillip Streible, senior
market strategist at RJO Futures in Chicago.
Even before Iran's sanctions are lifted, Iran's oil exports were on
target to hit a nine-month high in January. Tehran is expected to
target India, Asia's fastest-growing major oil market, as well as
its old partners in Europe with increased exports once sanctions are
lifted.
Despite oil prices hovering around new multi-year lows, analysts say
that prices have not hit the bottom just yet, with demand likely to
ease in coming weeks, especially with refiners beginning to shut for
routine spring maintenance.
A further fall in prices "cannot be excluded", said Commerzbank
analyst Carsten Fritsch told Reuters Global Oil Forum. He warned
that $25 a barrel "is quite possible, but not much lower than that."
(Additional reporting by Libby George in London and Aaron Sheldrick
in Tokyo; Editing by Marguerita Choy)
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