30 March 2015 – Brent crude oil prices fell below $56 a barrel on Monday, extending steep losses from the previous session, as Iran and six world powers tried to reach a deal that could add oil to the market if sanctions against Tehran are lifted.
Iran and world powers tried to break an impasse in nuclear negotiations on Sunday ahead of a deadline to find a preliminary agreement by Tuesday, although diplomats warned the attempt could still fall apart.
International benchmark Brent crude oil futures had dropped to $55.99 in early trade, down 42 cents since its last settlement and after falling 5% on Friday as the market began to price in the possibility of a deal with Iran.
Front-month US West Texas Intermediate crude futures had fallen 73 cents to $48.14 a barrel.
“Any relaxation of Iran oil sanctions could see increased exports adding to swelling global supplies and further pressuring prices,” ANZ bank said on Monday.
Singapore-based brokerage Phillip Futures said in its market outlook for the second quarter, which begins in April, that it expected oil prices to fall further.
“We expect Brent and WTI to bottom out at $50-53 and $46-48 respectively,” it said, adding that strong US output, a return of Libyan production and weak economic data, especially from Japan and China, could delay prices rising.
In the US, the oil rig count continued to fall as producers adjust to lower prices, although analysts said that lower drilling activity would only affect actual oil production later this year.
“The current rig count is pointing to US production declining slightly sequentially in 2Q15 and 3Q15,” Goldman Sachs said in a note.
Despite the expected dip, Goldman said that drilling could bounce back in 2016.
“US producers are preparing to ramp up activity later this year by successfully raising equity and building an uncompleted well war chest. Coupled with the large availability of external capital, this leaves risk to our $65 per barrel 2016 forecast skewed to the downside as these assets will quickly be deployed in a lower cost environment,” the bank said.
Energy consultancy Wood Mackenzie said last week that oil and gas exploration costs were set to fall by a third and that 2016 could see drilling activity bounce back to 2014 levels.