“Iran’s additional crude shipments have the potential to further depress prices, perhaps to as low as US$25 a barrel”, Gordon Kwan, a Hong Kong-based analyst at Nomura Holdings Inc, said by email yesterday.
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USA crude was down 27 cents at $29.15 a barrel, not far from a 2003 low of $28.36 hit earlier in the session.
Oil prices are caught in a death spiral with February’s West Texas Intermediate (WTI) oil landing at a 12-year low below $30.00 last week.
The most immediate fallout may be a steep drop in crude oil prices starting with the Asian market on Monday morning.
“We were watching Asia when it opened, in terms of how markets digested (the news) over the weekend, and it did suggest to a fair degree that it (the lifting of sanctions) has been priced in”, said Miswin Mahesh, of Barclays Capital.
“I am optimistic about the future, the return of stability to the global oil markets, the improvement of prices and the cooperation among the major producing countries”, al-Naimi said. This year, worries about an economic slowdown in China, the world’s second-biggest oil consumer, have already pushed crude down 20% since the beginning of the year. As part of the deal, tens of billions of dollars’ worth of Iranian assets estimated by the U.S.at around $50bn will now be unfrozen and global companies that have been barred from doing business there will now find a market for everything from cars to airplane parts.
“It is too early to say what kind of market impact Iran’s return will have or how much of Iran’s return is already priced in”, they wrote.
The Persian Gulf nation will only be able to increase oil production by 100,000 barrels a day, or 3.7 per cent, a month after sanctions are lifted and by 400,000 in six months, according to the median estimate of 12 analysts and economists surveyed by Bloomberg.
“We do expect to see a substantial increase in exports over the coming weeks as Iran ships out the crude it had held in floating storage”, JBC Energy said.
The main thrust of the sanctions relief is in crucial sectors such as oil and finance and this will allow Tehran to re-enter the global economy. When oil prices plummeted in 1998, Mexico cooperated with the Saudis and other suppliers to restore market stability and boost prices, he said.
The Organization of the Petroleum Exporting Countries late previous year rejected calls for the group to slash output and perk up prices, preferring to fight for market share with competitors.
Meanwhile, where US oil production has stubbornly refused to fall below 9 million barrels a day, demand is now starting to look “spectacularly weak”, according to a note released by the U.K.’sBarclays bank.
Sanctions enforced by the United States and the European Union kept about million barrels per day from being exported from Iran.
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Brent crude fell to $27.67 a barrel, its lowest level since 2013, before mounting a partial recovery to trade at $28.83, down 0.4% on the day.
