Despite the low commodity prices, shale producers in the United States have kept their production rates hovering near record levels.
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Adding to the demand concerns stemming from the Chinese equity market rout is the uncertainty, regarding Iranian oil being introduced in the foreseeable future.
Geopolitical risks and delays in Iran’s return, combined with current market positioning, might lead to a rapid rebound in prices in the coming months that would be fundamentally supported, the report noted.
Analysts warn the sanctions life on Iran now has opened up door to a wave of new oil.
As of 10:30 AM EST today, West Texas Intermediate (WTI) crude oil front-month futures were trading down 5.38% at $29.52 per barrel. Saudi Arabia, the de-facto OPEC leader, is already struggling to keep its market share and Iran’s ambitions could put it under even more pressure.
Iranian Oil Minister Bijan Namdar Zanganeh has pledged to boost output by 0.5 million barrel per day within weeks of the end of sanctions and by the same amount again in six months, according to an ANZ report.
The agency forecast that a limited decline in US Supplies next year and steady growth in global demand will help ease the glut only in the third quarter of 2017, the first decline after almost four straight years of gains. The rift between the two Middle East powers has paralysed Opec – the world’s oil cartel – which has abandoned formal production targets for the first time in its history.
“A lot of Iranian oil has been seeping into the global market since the signing of the deal with Iran on its nuclear program, since sanction enforcement was very lax following the agreement”, Shaffer said. Brent crude prices have fallen by some 30% since early December 2015.
And Tehran has plenty of it. It’s reported 22 large crude carriers are floating off the coast 13 of which are fully or nearly fully loaded.
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Price of oil has now reached a critical level that oil and gas projects worth $380 million have been postponed or canceled since 2014 as companies slash costs to survive the oil price crash, including $170 billion of projects planned between 2016 and 2020. While that spells pain for oil exporters, it’s a boon for households, said Eichengreen, author of “Hall of Mirrors”, a book comparing the crises of the Great Depression and the Great Recession.
