For the past 18 months, oil oversupply has been the main factor responsible for dragging down prices by two-thirds, after Saudi Arabia led OPEC in a shift of its policy by deciding against cutting production to support prices.
Low prices have also encouraged global demand to multi-year highs, but just as Saudi Arabia’s strategy was showing signs of success, the United States has lifted a decades-old ban on its crude exports and Iran is bracing to boost output after lifting of the sanctions, adding new distresses to the oil market.
Gulf oil sources have been skeptical about a quick return of Iranian barrels and Tehran’s ability to raise production as swiftly as it says it can. They have expected sanctions to be lifted by the end of March with around 200,000-300,000 barrels per day of extra production flowing from Iran later this year.
But Iran expects the United Nations nuclear watchdog to confirm sooner that it has curtailed its nuclear program, paving the way for the unfreezing of billions of dollars of assets and an end to bans that have crippled its oil exports.
Tehran plans to lift production by 500,000 barrels per day (bpd) post-sanctions and gradually raise shipments by the same amount a few months later. Iran is expected to target India, Asia’s fastest-growing major oil market, as well as its old partners in Europe with the increased exports.
Some now see oil prices falling further to around $25 a barrel. Brent was trading at $29.53 on Jan 15, 2016 at 10.23GMT and the average price for a basket of crudes from OPEC producers fell to $25 a barrel on Jan 14, 2016, even before unrestrained exports from Iran hit the market.
Saudi Arabian oil minister Ali al-Naimi has said that growing global demand could absorb an expected jump in Iranian production this year.
Meanwhile, China’s state-run refiner Sinopec Corp has purchased its first ever batch of U.S. crude oil for export, a source told Reuters on January 14, 2016 – a landmark transaction after the ending of a four-decade ban on domestic exports.