The oil prices have dropped by 3% as an after effect of the announcement made by Iran about the record-high production of oil. The market is already oversupplied, and the new announcement wiped out all the gains of the previous week. The market has witnessed a rare interlocking of stock and oil markets, which according to experts indicate deep fears regarding the global economic growth.
The oil ministry of Iraq said recently that the output of oil reached a maximum in December with the fields in the southern and central regions producing around 4.13 million barrels a day. The senior energy economist at Amsterdam’s ABN Amro, Hans van Cleef said that the news of Iran hitting a record building oversupply has caused the decline in the oil prices.
Brent Crude declines by 2%
At the start of this year, the oil prices started crumbling with the global equities recording one of its worst-ever beginnings of the year. The trend continues with the Brent crude declining by almost 2% (84 cents) and both the U.S. stock futures and European indexes also going downwards at the start of the week. Brent crude is the international oil benchmark, and when it is showing a decline, there is a cause to worry.
The daily moves in S&P 500 stock index and Brent price in the past one month has been 0.97. According to the data from the benchmarks examined by The Wall Street Journal, it is considered as one of the tightest correlation in the past 26 years at any given time. As per the calculations whenever the correlation is 1, it means that the stock and oil prices are moving in the same direction whereas when the correlation is minus 1, it means that they are moving in the wrong direction.
The recent oversupply pattern has shifted the dynamics of oil in the past year, and a half and traders who earlier were just worried about the market is now concerned about the weakening in its demand.