The current sanctions on Iran’s oil has shaped the amount of oil in the market; but analysts fear that when the restriction is lifted from the country, there might be oversupply concerns – considering the fact that Iran stated it is very much capable of producing extra 500,000 barrels daily. He said, “You can’t say this was unexpected but the Iran news is an additional factor that’s working against oil prices”. Saudi Arabia has urged Iran to hold back on its supply in hopes to stabilize the market. The US Treasury said it was imposing sanctions on five Iranians and a network of firms based in the United Arab Emirates and China in connection with Iran’s ballistic missile program.
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“Major producers are now delivering 2-2,5 million barrels per day more than demand, so the question is how long they can continue to overproduce at that level”.
“Can it go any lower” the International Energy Agency asked in its monthly oil market report.
The global oil surplus will persist at least until late 2016 as demand growth slows and OPEC shows “renewed determination” to maximize output, the International Energy Agency said last month. Non-OPEC supply declined by 0.13 mbpd and Opec supply by a faster 0.21 mbpd, cutting Opec’s share of global production to 33.8 percent from 33.9 percent the previous month.
As worries about Iran’s return to an already glutted oil market drove down oil prices, analysts believe that the fresh sanctions announced by U.S. over its ballistic missile programme might change the tune of events in the worldwide oil market.
The worldwide quotations for a barrel of oil brought prices to the lowest point in over a decade.
“The New Year has been awash with pessimism about economic growth”, the IEA says, citing the World Bank’s early-January report saying last year’s global economic growth was the slowest since 2001.
And on Monday, Yukiya Amano, the IAEA’s head, arrived in Tehran for talks with Iran’s President Hassan Rouhani.
The US government has also revoked a 40 year old ban on its crude reserves, resulting in oil flows out of the US crude price zone and into Brent.
You may well ask what’s a million to two million barrels a day of excess production in a world that requires approx 90-95 million barrels daily and why should it have such a huge impact on prices?
It comes after the global oil benchmark dropped to US$28 on Monday.
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Iran on Monday ordered as planned an increase of 500,000 barrels per day in its oil production. If that happens, crude futures contracts for front-month deliveries may decline so far that the market contango widens – meaning it is more profitable to store oil than sell it – so much that makes it financially viable for investors to store crude on floating tankers.
