WASHINGTON (AP) — A new wave of oil from Iran will flow into a global market awash in oil where prices are plunging to depths not seen in a dozen years. With a historic nuclear deal between Iran, the U.S. and five other world powers set into place this weekend, a European oil embargo on the world’s seventh-largest oil producer will end.
The impact may be felt widely when crude begins trading in Asian markets Monday, but the return of Iran to global energy markets created tremors even before the first trade was made. Saudi Arabia’s stock market plunged more than 5 percent Sunday. Saudi Arabia is the biggest oil producer within OPEC, the oil cartel with waning influence to which Iran also belongs.
Saturday was dubbed Implementation Day, when Iran was freed from international sanctions after being deemed as having dismantled most of its nuclear program under the deal established last summer. “Implementation Day for the nuclear agreement means a new oil day for Iran,” Daniel Yergin, vice chairman of research firm IHS and author of a Pulitzer Prize-winning book on the history of oil, said Sunday.
The oil market has anticipated the unchained tide of Iranian oil for months, and some of that may be reflected in new lows for oil prices in the past week. U.S. crude oil prices have trended down for a year and a half, and have fallen almost 40 percent in just the past three months. On Friday, the price slid 6 percent to $29.42 a barrel. That compares with a high of over $100 a barrel in the summer of 2014, and close to $150 per barrel before the U.S. recession.
There are predictions of barrels going for $20 soon.
Falling crude prices have led to lower prices for gasoline, diesel, jet fuel and heating oil. This has helped boost consumer spirits and encourage spending, but may also have slowed the overall recovery of the U.S. economy last year as major energy companies slash investments and jobs. The astonishing fall of oil has created jitters globally as economic growth for a major consumer, China, ebbs. That has rippled to U.S. stock markets as well over apprehension that the economic contagion will spread.
For Iranian oil, a big question is how much and how fast. Already, some 38 million barrels of oil are in Iran’s floating reserves, ready to enter the market, according to the International Energy Agency. Iran has signaled it aims to put as much as 1 million to 1.5 million barrels daily into the market. But the IEA estimates that 400,000 to 500,000 barrels a day is more likely; some experts see 300,000 or so barrels coming in during the next six months.
In any amount, “it’s coming at a time when the market is still oversupplied,” said Larry Goldstein, director of the Energy Policy Research Foundation, who predicted a decline in oil in 2014.
That could mean even more acute pressure on U.S. oil drilling companies to cut back on new projects and jobs.
It’s hard to know precisely what shape Iran’s oil fields are in. The IEA estimates that Iran’s crude oil production capacity at 3.6 million barrels a day, which is 800,000 more than current levels produced.
“We will try to maximize our crude export capacity to Europe and restore 42 percent to 43 percent share in the European market before the sanctions were imposed,” Mohsen Qamsari, director of international affairs at Iran’s national oil company, was quoted as saying in Iran’s official news agency.
The fight for control of global oil markets in OPEC and outside of the cartel is entering a new phase, according to Yergin.
Nothing is certain, however, as a new global landscape for energy emerges. Among the biggest wild cards right now is OPEC member Venezuela, which “is about to fall apart,” said energy economist Philip Verleger.
New economic data from the country’s central bank shows an economy in shambles and annualized inflation surging into triple digits. Experts say Venezuela is dangerously close to just breaking even on the oil it produces, which accounts for 95 percent of export earnings.
A major power failure in the fall knocked out its biggest oil refining complex. Lost production could offset a 300,000-barrel-per-day increase by Iran, Verleger said.