Oil slides to lowest since 2003 as Iran sanctions lifted

John Gay, an editorial staffer with the National Interest who covers Iranian issues, is more measured in his analysis of Iran’s re-entering of the global oil market.

Oil prices rose on Tuesday as data showed Chinese oil demand likely hit a record high in 2015, but contracts remained below $30 a barrel as the IEA said the market should stay oversupplied until at least the end of this year. Brent crude, an global benchmark, closed at $28.94, down $1.94.

Brent crude fell below 28 a barrel in Asia on Monday for the first time in more than 12 years on fears about a worsening supply glut after Western sanctions on Iran were lifted, allowing Tehran to resume oil exports. Under the mechanism, Iran received payment for its oil sold to India partly in the Indian currency which was subsequently used to settle payments for Iranian imports of Indian commodities such as rice and pharmaceuticals.

They estimate that Iran already has some 46 million barrels of petroleum pumped and stored offshore and another 30 to 40 million barrels reportedly in storage on land. “Non-OPEC marginal barrel production in the next six months will be sensitive to sustained low oil prices”.

Iran reached a landmark deal past year with the US and other world powers to curb its nuclear activities in exchange for the lifting of global sanctions.

As at Friday, January 15, OPEC’s daily basket price stood at $24.74 a barrel, and analysts still predict a drop to $10 as Iran starts pumping more oil into the market. OPEC’s 2014 strategy shift to defend market share and not prices helped deepen the decline.

“We do not believe that Iran would want to depress prices much further by rushing to dump its inventories”, Jessop said.

The IEA is sticking with its forecast for a decline of around 600,000 bpd in non-OPEC output, which it said had been surprisingly resilient in the face of tumbling crude oil prices.

Iran is ready to increase its crude exports by 500,000 barrels a day, the deputy oil minister said on Sunday, hours after worldwide sanctions on Tehran were lifted, removing an obstacle to exports.

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.

Ric Spooner, chief market analyst at CMC Markets in Sydney, said that while Iranian oil could come in quickly, suppliers still needed to find buyers.

Crude oil hasn’t priced as low since September 2003. The index has shed 14 percent this year. That is why analysts are forecasting an increase of around 400,000 barrels a day in the coming months from Iran.