As worries about Iran’s return to an already glutted oil market drove down oil prices, analysts believe that the fresh sanctions announced by United States over its ballistic missile programme might change the tune of events in the Global oil market.
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Buyers of Iranian crude are free to import as much of it as they want after the International Atomic Energy Agency determined that the country had curbed its ability to develop a nuclear weapon.
Total SA Chief Executive Patrick Pouyanné on Tuesday said the French oil major is likely to report a 20 per cent fall in profit for 2015 due to the collapse in oil prices.
The U.N. nuclear agency certified Saturday that Iran has met all its commitments under last summer’s agreement, prompting the lifting of a broad range of economic sanctions, including those covering the oil industry.
“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.
Oil is down about 21% this year amid volatility in Chinese markets and speculation that a surge in exports by Iran after the removal of restrictions on its crude sales will prolong a global glut.
Sanctions had cut Iran’s oil exports by about 2 million bpd since their pre-sanctions 2011 peak, to little more than 1 million bpd. Even when oil prices are absurdly low, it is one of the countries that can still make money.
Oil prices have recently plummeted to under $30 a barrel, the lowest in 13 years.
“The lifting of key sanctions should allow [Iran] to increase crude exports this year by at least 500,000 barrels a day on average, putting further downward pressure on oil prices in the near term”, Barclays analysts said in a note on Monday, Reuters reported. However, the Organization forecasts that non-OPEC countries will be unable to sustain production if low oil prices continue. At the same time, as a result of sanctions against Iran being lifted, the IEA estimates 285m barrels will be added to stocks this year.
The market could “drown in oversupply” this year, according to the organisation, as rising Iranian output offsets productions cuts in other markets.
The current price is not really a surprise, although the prices fell more rapidly than we expected.
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Iran could also encounter difficulties because some of its oil infrastructure may need fix and replacement, while it may take time for its idle oilfields to be ramped up to full production, it said.
