Abu Dhabi: As oil continues to slump due to oversupply and weak demand, the entry of Iranian oil into the market is likely to pose another big threat to recovery of prices.
Oil prices have plunged by more than 50 per cent in the last one year as the US pumped record volumes of shale, and demand slackened across the globe.
From a peak of $115 (Dh422) in June last year, oil prices have dropped to less than $50 (Dh183) this week.
Ole Hansen, head of commodity strategy at Saxo Bank said the increased supplies from Iran present another obstacle for the recovery of oil prices, even though it is uncertain when the Iranian oil will enter the market.
“Before Iranian oil exports pick up we still need to see compliance being verified, before sanctions are lifted. This process will most likely prevent Iran from increasing exports for at least another six months and, even then, the impact on the market will depend on the price level at that time.”
“The renewed slump during July and August back towards the lows witnessed earlier this year will, if maintained, have a negative impact on non-Opec production levels, not least from US shale formations.”
An important member of the Organisation of the Petroleum Exporting Counties (Opec), Iran has the world’s fourth largest proven oil reserves after Saudi Arabia, Venezuela and Canada.
The country’s annual production is estimated to be about 2.8 million barrels per day (bpd). Exports stand at about 1.1 million bpd, half their pre-sanctions level, according to data from the US energy department.
Iran last week said it can increase production by 500,000 barrels per day within a week of sanctions ending, and by a million barrels per day within a month.
The country reached a historic agreement with P5+1 group of countries in July that would pave way for the removal of sanctions on the Islamic republic.
Daniel Ang, an Investment Analyst from Singapore-based Phillip Futures said the real issue would be about how much demand can increase before Iranian crude would be introduced.
“We are seeing slightly higher crude imports from China and would think that this is a healthy sign. On top of this, the supply side is currently being eased with some cuts in US crude production underway.”
“We have been expecting this correction to happen for the US, and depending on how much US production can drop, this could help support the market when Iranian crude comes into the picture.
Meanwhile, oil traded lower during the Asian session on Monday before paring some of the losses.
International benchmark brent was trading at $48.91 per barrel on Monday at 3.37pm UAE time, up 0.62 per cent.
West Texas Intermediate (WTI) was placed at $43.90 per barrel, an increase of 0.07 per cent.
