The surprise cut in European interest rates has sent the oil price tumbling to little over $100 a barrel – but a top industry analyst said last night that the price slip is just a “blip”.
But there is a further warning that a cooling of tensions between Iran and the western world could flood the already well-supplied market with oil, hitting prices further.
Brent crude steadied around $104 a barrel (£64.90) yesterday, close to its lowest since early July, and just weeks after it nearly hit $120.
North Sea industry expert Colin Welsh, chief executive of specialist corporate-finance adviser Simmons & Co International, believes the price was down to falling interest rates in Europe.
“Brent’s fall has more to do with the surprise European Central Bank rate cut than any fundamental changes in the supply and demand balance,” he said.
“The US dollar is going higher as a consequence of this rate cut and that is forcing commodity prices down.
“The sharp decline in global oil prices isn’t the start of a significant shift in the global oil outlook. If anything, the Simmons’ view is for a gentle tightening of the market in the year ahead. We see this as a blip and not as a trend.
“The final point to note is that the futures curve for crude is in contango (where the futures price of a commodity is higher than the expected spot price) and therefore the market is betting that the price is going to rise in the coming months.
“Even today it’s up, so perhaps it may have already bottomed.”
But oil markets are generally well supplied, analysts say, and the apparent improvement in relations between Iran and the west is raising the possibility of higher supplies in future – and potentially lower prices.
News agency Reuters said yesterday that western powers have stepped up work towards a deal with Iran over its nuclear programme that could bring some relief in sanctions.
US Secretary of State John Kerry was set to join the talks between major powers and Iran in Geneva last night in an attempt to nail down a long-elusive accord to start resolving the stand-off over Tehran’s atomic aims.
Sanctions have removed more than one million barrels per day of Iranian crude oil from world markets and traders say any increase in supply from the Islamic Republic could hit oil prices hard.
Adding impetus to rumours that a deal may be imminent were comments by Israeli Prime Minister Benjamin Netanyahu saying Iran would be getting “the deal of the century”.
VTB Capital oil and commodities strategist Andrey Kryuchenkov said the oil market already had a negative outlook
“The theme is overwhelmingly bearish. The long-term fundamental picture is comfortable anyway you look at it.”