Worried About Sub-$20 Crude? Some Sellers Are Already There

An end to sanctions on Iran has driven global crude futures to 12-year lows and brought sub-$20-a-barrel oil in sight, although for some producers that is already a painful reality.

This unfortunate group sells some physical crude cargoes at prices that are closer to $10 a barrel, thanks to an abundance of the “sour” grades they produce and a consumer base that favours higher-quality “light” oils from other origins.

Producers of certain crudes from Mexico, Venezuela, Canada and Iraq are bracing for worse to come as Iran – now free of international sanctions – prepares to offload hefty supplies of heavy sour grades onto export markets.

Some cargoes of heavy Mexican crude are trading for less than $13 a barrel, and downside price momentum for hard-to-refine grades looks set to intensify.

This could act as an additional weight on benchmarks Brent LCOc1 and West Texas Intermediate (WTI) CLc1 futures, which have slumped roughly 20 percent since the start of the year to prices under $29 a barrel.

Reuters

Craig Erlam
Based in London, England, Craig Erlam joined OANDA in 2015 as a Market Analyst. With more than five years' experience as a financial market analyst and trader, he focuses on both fundamental and technical analysis while conducting macroeconomic commentary. He has been published by The Financial Times, Reuters, the BBC and The Telegraph, and he also appears regularly as a guest commentator on Bloomberg TV, CNBC, FOX Business and BNN. Craig holds a full membership to the Society of Technical Analysts and he is recognized as a Certified Financial Technician by the International Federation of Technical Analysts.