Iran to reclaim oil market from Saudi Arabia

Brent oil extended its decline below US$28 (RM123.90) a barrel after worldwide sanctions on Iran were lifted, paving the way for increased exports from the Opec producer amid a global glut.

The Middle Eastern country had recently made claims that it could raise its exports of crude oil by as much as 500,000 barrels in the first week after sanctions were lifted.

Saudi Arabia’s oil minister Ali al-Naimi said it would take “some time” to restore stability to the global oil market, but added that he remained optimistic.

Marking a 13-year low, the price of the Organisation of Petroleum Exporting Countries (OPEC) basket of twelve crudes stood at $24.74 a barrel on Friday, compared to $25 on the previous day, the organisation’s secretariat said.

“The additional crude will push prices lower when it enters markets that are already oversupplied”, Robin Mills of Dubai-based oil consultant Qamar Energy told Bloomberg.

Iran will probably start increasing exports by selling barrels it stockpiled on tankers in the Persian Gulf in anticipation of the deal.

Brent crude scheduled for March delivery tumbled to as low as $27.67 – about 4.4 percent from Friday’s close – before rebounding to trade at above $28.

With Iran – which owns 10 percent of the world’s proven oil reserves – free to export oil again, prices are expected to fall further in the near term, CNBC reported, citing commodities analyst ANZ.

“They are in a position to sell that if they choose to do so and increase supply quite quickly”, said Ric Spooner, chief market analyst at CMC Markets.

“Major producers are now delivering 2-2.5 million barrels per day more than demand, so the question is how long they can continue to overproduce for at that level”, he said. But that prospect didn’t aid the market on Sunday, as the index.DFMGI slid 4.6 percent to 2,685 points, its lowest level since September 2013, bringing this year’s losses to 15 percent.

The oil market response to the return of Iran to worldwide trading following the lifting of the economic sanctions imposed against it, has been swift and clear.

Supply outside OPEC would decline by 660,000 barrels per day (bpd) in 2016, led by the United States, OPEC said in a report.

If oil stays at current levels, authorities could be pressured into more spending cuts to reduce the red ink, slowing economic growth further – and conceivably threatening a recession. It’s one of the main reasons why the Dow has plunged 1,437 points so far this year.