U.S. crude closes below $30, as Iran sets to ramp up export level

Both brent and WTI fell sharply on Tuesday to close under $33 a barrel

Investing.com -- U.S. crude fell sharply on Tuesday closing below $30 a barrel for the first time in more than a week, amid reports that Iran could pencil in a line item on its annual budget, which would enable the Persian Gulf state to ramp up its oil exports above the 2 million barrel threshold in fiscal year 2016.

On the New York Mercantile Exchange, WTI crude for March delivery traded in a broad range between $29.82 and $31.52 a barrel, before settling at $29.97, down 1.68 or 2.30% on the day. With the second consecutive major decline, U.S. crude futures erased nearly all of their gains from a five-day winning streak last week when they soared more than 10%. WTI crude is approaching multi-year low from late last month when it slid below $27 a barrel to fall to its lowest level since 2003.

On the Intercontinental Exchange (ICE), brent crude for April delivery wavered between $32.24 and $34.16 a barrel, before closing at $32.76, down 1.47 or 4.31% on the session. North Sea brent crude futures have tumbled more than $3 a barrel over the first two days this week. When brent hit $36 a barrel last Friday, it completed a 26% rally from late-January when the international benchmark fell to its lowest level in 12 years.

Both WTI and brent surged last week following reports that OPEC and non-OPEC producers could meet to craft a strategy to slash global production by as much as 5% per day. The short-lived rally ended, though, after optimism faded that oil powers Saudi Arabia and Russia could arrange such a meeting.

Investors also reacted to reports that Iran is planning to export as much as 2.3 million barrels per day of crude this year, commencing as early as next month. Earlier on Tuesday, the managing director of the national Iranian oil company said government leaders have put the item in a draft bill for this year's fiscal budget, the Shana News Agency reported. Iran's new fiscal year is set to begin on March 21.

The return of Iran to global energy markets is viewed as bearish for global crude, which is awash in a glut of oversupply. Last month, crude prices dipped below $28 a barrel in the wake of an Implementation Day announcement that will enable Iran to ramp up exports by approximately 500,000 bpd over the next several months. The lifting of multi-year sanctions against Iran could allow the nation to increase exports to 2007 pre-sanction levels of 3.4 million bpd once its return is completed.

Crude prices have tumbled more than 70% over the last 20 months from 2014-highs of $115 a barrel, as global supply continues to severely outpace demand.

Energy traders await the release of the American Petroleum Institute's weekly crude stockpile report after the close of trading for further indications on demand strength in the U.S., the world's top consumer. Separately, Wednesday's government report from the Department of Energy could show that crude inventories rose by 4.8 million barrels for the week ending on January 29. A week earlier, crude stockpiles nationwide surged by more than 8 million barrels to remain near their highest levels in at least 80 years.

The U.S. Dollar Index, which measures the strength of the greenback versus a basket of six other major currencies, fell mildly to an intraday low of 98.79 before rallying to 98.91 in U.S. afternoon trading. The index remains near 12-month highs from December, when it eclipsed 100.00.

Dollar-denominated commodities such as crude become more expensive for foreign purchasers when the dollar appreciates.