Oil Prices Are Expected To Go Lower Following Iran Deal
There is a widespread belief that oil prices will keep going lower following the conclusion of the Iran deal after two years of negotiation. CNN Money has even reported that drivers in the U.S. can expect gasoline prices to go down to $2 or even less much later this year. In an interview with CNN Money, Oil Price Information Service Chief Oil Analyst Tom Kloza has said, “Once we get past Labor Day, we should see gas falling by 10 to 15 cents a month. By December a lot of places are going to see gasoline at $2 or less.”
Following the development of the Joint Comprehensive Plan of Action (JCPOA) that has been agreed upon by the United States, China, France, the Russian Federation, the United Kingdom and Iran, the nuclear program of Iran will be “exclusively peaceful.”
Moreover, according to the JCPOA, this means that Iran “under no circumstances will Iran ever seek, develop or acquire any nuclear weapons.” This will then lead to the “comprehensive lifting of all UN Security Council sanctions as well as multilateral and national sanctions related to Iran’s nuclear programme.” The said sanctions covers Iran’s trade, technology, finance and energy.
With regards to the energy sector, Iran will now be able to receive “investment in oil, gas and petrochemical” sectors.
Meanwhile, the sanction on the importation of Iranian oil, petroleum products, gas and petrochemical products will also be lifted, leading to an increase in oil supply in the world market. As far Iran’s oil production goes, The Wall Street Journal has determined from The International Energy Agency that Iran may be capable of producing anywhere between 600,000 and 800,000 barrels a day just months after the lifting of the country’s sanctions.
According to The Washington Institute For Near East Policy, sanctions that were imposed on Iran’s oil exports during mid 2012 resulted in the country’s oil export dropping from 2.5 million barrels a day to 1.4 million a day. Furthermore, the institute estimates that it will take Iran as much as an entire year to be able to produce as much oil as they used to prior to the sanctions.
Nonetheless, CNN Money reports that experts believe that Iran may already be capable of producing about 500,000 barrels a day of oil by the end of this year. Meanwhile, the International Energy Agency estimates that within months after the lifting of sanctions, Iran can produce around 800,000 barrels a day.
While the world’s supply of oil increases, OPEC also believes that 2016 will see an increase in world oil demand to estimated average of 93.94 million barrels per day. Moreover, Non-OECD countries are expected to lead the demand growth in oil.