Oil prices fell 35%. What now?

The diplomatic rift between Saudi Arabia and Iran could complicate OPEC’s efforts to calm oil markets if Iran begins exporting up to one million barrels a day of extra crude once Western sanctions are lifted as expected early this year.

That’s a level not seen since the global financial crisis.

However, in both June and December, the Organization of the Petroleum Exporting Countries – which pumps 40 percent of the world’s oil – refused to slash output.

The sanctions have halved Iran’s oil exports to around 1.1 million bpd from a pre-2012 level of 2.5 million bpd, and the loss of oil income has hampered investments.

Reminding that Iran is seeking to build economical refineries and would not give up building of new refineries, NIORDC managing director underlined “economical refineries need to have a lower fuel oil capacity as well as that they should comply with the Euro 4 standard of the European Union”. Instead, it appears willing to continue tolerating cheap crude to defend market share and wait for the market to balance without cutting supplies, oil sources and analysts say.

Oil prices have been hovering around 11-year lows after falling to their lowest since mid-2004 in late December. Meanwhile, the EIA (U.S. Energy Information Administration) estimates that WTI crude oil prices could average $51 per barrel in 2016. Additionally, U.S. crude output is poised to grow for a seventh straight year, and Russian producers are proving resilient to the price slump. West Texas Intermediate crude futures averaged US$48.90 in 2015.

Other officials have also emphasized that Iran will proceed with increasing its oil production even now that the price of oil is plunging below $30 per barrel.

Base metals tumble Base or industrial metals suffered a tumultuous 2015 on the back of Chinese demand fears, a USA interest rate hike and the strong greenback – which makes dollar-priced commodities more expensive for buyers using weaker currencies.

That means the global oversupply could swell even more. “We will raise our market quota steadily”, he continued. “The Central Bank of Iran can exercise control on this”. And most analysts hold to the idea that production cuts will turn the market around in the coming year.