Oil prices rise on record Chinese demand

Brent crude oil prices shot up 2.1 percent in early trading to recover to $29.56 per barrel in NY.

According to industry analysts, the price of crude oil has reached this reduced value because of oversupply caused by concerns regarding Iran.

The global supply of oil, illustrated in green, is expected to outstrip demand through at least the end of 2016.

Iranian President Hassan Rouhani plans to visit Italy and France next week on his first European trip since sanctions were lifted, a diplomatic source said yesterday. “Within months of sanctions being lifted, Iranian oil fields will probably be capable of 3.4 mb to 3.6 mb per day” said the report.

The U.S. premium over Brent hit its highest level since 2010 on Monday as Iran’s oil will be exported to Brent-priced Europe and Asia while regulations still restrict it from going to the United States.

Oil prices rose more than 3 per cent 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 this year.

Iran has said it will raise output by an initial 500,000 bpd now that global sanctions have been lifted, but the IEA said it believes the increase will be of a more modest 300,000 bpd by the end of the first quarter of 2016.

Falling crude prices have led to lower prices for gasoline, diesel, jet fuel and heating oil. The report also gave a clear cut “Yes” as an answer and reasons, “Unless something changes, the oil market could drown in over-supply”.

“Iran is able to increase its oil production by 500,000 barrels a day after the lifting of sanctions, and the order to increase production was issued today”, Deputy Oil Minister Rokneddin Javadi, who also heads the National Iranian Oil Company, was quoted as saying by Iran’s Shana news agency. However, the Organization forecasts that non-OPEC countries will be unable to sustain production if low oil prices continue.

“The re-entry of Iran…is expected to further add to the supply glut”, said EY analyst Sanjeev Gupta.

When there is oversupply of oil in the market, price decline results; but the recent experience has not been without the influence of U.S. shale oil which almost took over the entire market.

Iran’s current oil production is estimated to be around 2.8 million barrels per day (mbpd), of which about one million barrels are exported.

“This means we will be seeing a bigger oil glut with Iranian crude exports coming back to the market”, said Phillip Futures analyst Daniel Ang.