Oil market could ‘drown in oversupply’

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. Neighboring countries will pump more within six to 12 months and take away Iranian market share if the country doesn’t boost production, said Roknoddin Javadi, managing director of state-run National Iranian Oil Co., according to Shana.

Iran now produces 2.8 million barrels per day and exports just over one million barrels.

The oil market is already oversupplied and added to that glut will be millions of barrel of crude from Iran after the lifting of sanctions.

IEA estimates global oil supplies expanded by 2.6 million barrels per day in 2015, following hefty gains of 2.4 million barrels per day in 2014.

USA crude CLc1 was down 38 cents at $29,04 a barrel, not far from a 2003 low of $28,36 hit earlier in the session.

Daniel Hynes, commodities analyst at ANZ, told CNBC’s “Squawk Box” (monitored by Kallanish Energy) that in this oversupplied market, fundamentals are taking a backseat.

Crude was down Monday morning, trading below $30 US a barrel.

He said, “You can’t say this was unexpected but the Iran news is an additional factor that’s working against oil prices”. Since January, the prospect of the lifting of the sanctions on Iran accelerated the rout.

The low price of crude has seen oil companies laying off thousands of workers and cutting their capital spending.

For December, Opec said that global oil supply fell 0.34 mbpd to average 95.20 mbpd. “Iran is not new, but we’ve arrived now at the point where sanctions have been removed and it’s going to be a key focus for the markets over the coming weeks”.

Those measures were scrapped as part of a landmark deal between Iran and world powers, rewarding the Islamic Republic for scaling back its atomic energy program in ways that U.S. President Barack Obama said would prevent it from getting its hands on a nuclear bomb.

Brent crude has not been this cheap since November 2003 as an over-supplied global oil market prepares to absorb Iran’s increased output.

With OPEC supply potentially expanding and demand growth slowing, global inventories could accumulate by a further 285 million in 2016 after swelling by 1 billion barrels previous year, the IEA said.