Oil prices plunged below $28 a barrel early Monday, hitting energy firms and extending losses across Asian markets after sanctions were lifted against Iran, allowing the key producer to resume crude exports.
While the decision to free Tehran of the strict embargoes had been well telegraphed, the news hammered Middle East equities Sunday, which were already under pressure as the price of oil sits at 12-year lows.
The United States and the European Union lifted the sanctions over the weekend after the UN’s atomic watchdog confirmed Iran had complied with its obligations under the deal to curb its nuclear programme.
The country is now free to start shipping crude, adding to a supply glut, which — along with weak demand and a slowing global economy — has slashed prices by about three quarters since mid-2014.
On Monday a barrel of Brent oil fell 4.4 per cent to $27.67 at one point before bouncing back above $28. The last time Brent closed below $28 was in November 2003 and Nomura Holdings is tipping further falls towards $25.
In afternoon trade Brent was down 2.2 per cent at $28.30 and US benchmark West Texas Intermediate was 1.9 per cent off at $28.86.
“There is ongoing negative pressure on oil prices from oversupply,” Ric Spooner, a chief analyst at CMC Markets in Sydney, told Bloomberg News.
“Iran is not new, but we’ve arrived now at the point where sanctions have been removed and it’s going to be a key focus for the markets over the coming weeks. The question is how much supply can come online in the short term.”
Singapore’s DBS Bank said in a research note that adjusted for inflation oil was now cheaper than at any time since 1998, at the height of the Asian financial crisis.
The news was met with horror in Gulf trading, with stock markets in Saudi Arabia, Qatar, Dubai, Abu Dhabi and Kuwait all battered.
