Brent crude futures clawed back from 12-year lows on Friday, but intense downward pressure remained as the market braced for increased Iranian oil exports once international sanctions are lifted, possibly within days.
Brent and U.S. crude oil are on track to close lower for a third consecutive week, down roughly 20 percent from their 2016 highs.
The International Atomic Energy Agency is expected soon to issue its report on Iran’s compliance with an agreement to curb its nuclear programme, potentially triggering the lifting of Western sanctions.
U.S. crude futures were down more than 4 percent at $29.90 per barrel at 1445 GMT, after posting their first significant gains for 2016 in the previous session. Earlier they hit $29.28, the lowest since November 2003.
The March Brent contract climbed back to $30 per barrel, trading 80 cents lower at $30.08, after hitting a 12-year low of $29.30 earlier in the day.
PVM analyst Tamas Varga said that while there could be short-covering, the focus would return to oil market oversupply.
“The general long-term trend is that we are going down,” Varga said of prices.
On Friday, the average price for a basket of OPEC crudes fell to $25 per barrel, even before unrestrained Iranian exports hit the market.
“The key theme for 2016 will be real fundamental adjustments that can rebalance markets to create the birth of a new bull market, which we still see happening in late 2016,” Goldman said in a report.
Others were more concerned about the impact of new exports from Iran. While experts warned that not all sanctions may be lifted immediately once the agreement comes into effect, any additional oil would add to a glut that has pushed prices into a deep slump since mid-2014.
“In the very short term, another price drop cannot be excluded in particular after sanctions against Iran are being lifted,” Commerzbank analyst Carsten Fritsch told Reuters Global Oil Forum.
“That means a drop towards $25 is quite possible, but not much lower than that.”
The oil price collapse has hammered currencies from commodity-producing nations and spooked financial markets as investors worry about the health of the global economy.
Even before sanctions are lifted, Iran’s oil exports were on target to hit a nine-month high in January, with 1.10 million barrels a day of crude, excluding condensate, to load.
Tehran is expected to target India and its old partners in Europe with increased exports once sanctions are lifted.