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NYMEX crude settles below $30/b for first time since 2003, down 10.5% on week

New York — Front-month NYMEX crude settled below $30/b for the first time since December 1, 2003, as a wave of selling spread across futures and equities markets, while reports of an imminent implementation of the Iranian nuclear deal added to supply glut concerns.

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NYMEX February crude settled $1.78 lower at $29.42/b and ICE March Brent -- which is now the prompt contract -- settled down $1.94 at $28.94/b.

During trading, WTI fell as low as $29.13/b, last lower in November 2003, while Brent touched $28.82/b, the lowest level since February 2004.

Both contracts shed significant value over the course of the week, with WTI dropping $3.46, or 10.5%, from last Friday's settle and Brent sliding $4.61, or 13.7%.

Refined products tracked the fall in crude prices, with NYMEX February RBOB settling 4.72 cents lower at $1.0212/gal and ULSD 4.65 cents lower at 93.43 cents/gal.

The impending addition of Iranian oil to an oil market that is oversupplied by as much as 1.5 million b/d, according to International Energy Agency estimates, weighed on the market.

On Thursday, a spokesman for Iran's Atomic Energy Organization said that the country had removed the sensitive core from its Arak nuclear reactor and that UN inspectors were set to visit the site.

The removal of the core from the Arak reactor essentially eliminates Iran's ability to produce plutonium for a nuclear weapon and was seen as a critical step in the implementation of the Iranian nuclear agreement.

Iranian oil minister Bijan Zanganeh has said the country will be able to increase exports and production by 500,000 b/d immediately upon the lifting of sanctions and by a total 1 million b/d within six months.

Scott Modell, managing director of The Rapidan Group, forecasts 200,000 b/d of Iranian crude coming back onto the market in February, increasing by an additional 200,000 b/d in March.

"We are expecting a statement later today and sanctions should be lifted immediately," Modell said. "The US and the EU have everything in place and we see no reason that Iran would slow its return to the market."

Rising tensions between Iran and Saudi Arabia, reflected in proxy war being waged in Yemen and Saudi Arabia's execution of a prominent Shiite cleric, are not likely to impact oil production in the region.

"We don't see disruption risks even though the Saudi-Iran tensions will continue for many reasons," Modell added. "In fact, the tensions could make a production cut agreement more difficult."

The Rapidan Group, an energy consultancy, forecasts an additional 600,000 b/d of Iranian exports from current levels by the end of 2016.

While slowing economic growth and deflationary pressures in China has been weighing on crude prices and equity markets, data released Friday raised concerns about the direction of the US economy.

The US Department of Commerce said that advanced estimates for retail and food services sales were down 0.1% in December after growing steadily through 2015.

"Some recent activity indicators have been on the softer side, pointing to a relatively weak fourth quarter for real GDP growth," William Dudley, the president of the Federal Reserve Bank, said Friday.

Analysts have cited robust gasoline demand -- in part due to falling prices at the pump -- as one of the only bright spots in the oil complex.

"One of the supportive factors in 2015 was that low prices would trigger increased demand," said Gene McGillian, senior analyst at Tradition Energy. "Gasoline had been the strong card over the last year."

A softening of the US economy could impact gasoline demand, removing a key pillar of support for oil prices.

The market failed to find any support from Friday's release of the Baker Hughes Rig Count, which showed a decline of just one oil drilling rig in the US over the past week despite sinking oil prices. There are 515 rigs drilling for oil across the US compared to 1,366 a year ago.

While production has started falling in the Bakken and Eagle Ford basins after the US oil drilling rig fleet more than halved over the course of 2015, output from the Permian and offshore US Gulf of Mexico has remained stubborn.

Data released by the US Commodity Futures Trading Commission Friday reflected the increasingly bearish outlook for oil prices. In the week ended Tuesday, money managers slashed their net length by 13,040 lots to 36,396 lots. Of that, shorts increased by 30,929 lots to 213,491 lots.

Equity indices were sliding with crude prices. In late-afternoon trading, the Dow Jones had shed 393.3 points to trade at 15,985.7, while the S&P 500 was down 41.87 points at 1879.17.

Chinese stocks also fell during Friday trading. The Shanghai Composite Index closed 3.55% lower, down 106.68 points at 2,900.97 and the Shenzhen Composite Index lost 3.4%, down 63.24 points at 1796.13.

Many analysts have focused on the US dollar's impact in crude prices in recent weeks.

Morgan Stanley issued a note this week raising the possibility of $20/b crude prices owing to a strengthening of the dollar and the likelihood of a devaluation of the yuan.

"It's not about deteriorating fundamentals: The [US dollar] and non-fundamental factors continue to drive oil prices," Morgan Stanley analysts said. "For every 1% move in the trade-weighted [US dollar], we tend to see a 2-4% move in Brent."

On Friday, crude prices seemed to be bucking the trend, with the dollar index down 0.206 point at 98.891.

(This version of the story corrects a typographical error in reference to Arah reactor.)

--Jack Laursen,
--Edited by Derek Sands,