A global deal to lift sanctions against Iran could unleash a flood of oil on to world markets by next year just as crude output recovers in Libya and Iraq, triggering a slide in prices and a major shake-up of the energy landscape.
The prospect of cheaper oil is a welcome relief for the West, but poses a major threat to Russia and a string of countries that depend on oil revenues to finance their budgets.
Iran’s interim deal with global powers on its nuclear program may do little to remove the risk premium on Middle East oil and may even send prices higher, according to an analyst.
“Price reaction may be subdued in the short-term,” said Michael Cohen, analyst at Barclays Bank Plc. in a telephone interview from New York. “There are so many geopolitical tensions that, if anything, could actually be worse off [due to] this deal.”
The U.S. oil boom has put European refineries out of business and undercut West African crude suppliers. Now domestic drillers threaten to roil Asian markets and challenge producers in the Middle East and South America.
So let's get this straight. Russia and OPEC 'agree' to consider (not actually act upon) "freezing" production levels (at current record high levels) and the market plunges amid disappointment over no cuts. And today WTI spikes and erases all those losses as Iran supports the "freeze" plan but will not cut its own production plans... As Reuters reports,
After some initial excitement, November has seen crude oil prices collapse back towards cycle lows amid demand doubts (e.g. China exports, China Industrial Production) and supply concerns (e.g. inventories soaring). However, an even bigger problem looms that few are talking about. As Iraq - the fastest-growing member of OPEC - has unleashed a two-mile long, 3 million metric ton barrage of 19 million barrel excess supply directly to US ports in November. Crude prices are already falling:
Middle East oil exporters are locked in an increasingly fierce battle for the world’s fastest-growing markets in Asia, as producers worldwide ship more crude east to compensate for shrinking demand from the United States and Europe.
The fight for the trillion-dollar Asian oil market has ended decades of comfortable dominance for Middle East producers, who faced so little competition that refiners in Asia complained of being charged a premium of a dollar or so per barrel above what buyers in Europe or the Americas paid.
Easing geopolitical tensions, improving crude supplies and tepid demand growth are expected to push oil prices lower next year, a Reuters poll showed.
The 32 analysts surveyed for the September poll forecast Brent crude oil to average $107.70 per barrel this year.
The benchmark is seen falling to $105.10 in 2014, and $102.50 in 2015.
SINGAPORE: Oil prices tumbled on Tuesday as Iran and six global powers reached a nuclear deal that could see an easing of sanctions against Tehran and a gradual increase in its oil exports just as Asian economies showed further signs of weakness. Iran and six major powers have reached a historic nuclear deal, which will grant Tehran sanctions relief in exchange for curbs on its nuclear programme, an Iranian diplomat said on Tuesday. Front-month Brent crude futures dropped about 1.6 per centage points, or 89 cents, to $56.96 a barrel at 0624 GMT.