Oil prices continued to plummet in early Monday morning trading in Singapore, according to a report from The Globe And Mail.
In the wake of an announcement that all American economic sanctions on Iran had been lifted, Iranian deputy oil minister Abbas Kazemi announced that the country is already prepared to increase its crude oil exports by 500,000 barrels per day. The sanctions, which severely curtailed the amount of oil Iran was allowed to export, were completely lifted when the U.N.’s nuclear watchdog announced Saturday that Tehran had met its commitment to curtail its nuclear program.
The sanctions had reduced Iran’s oil exports by about 1 million barrels per day since the 2011 sanctions, cutting them roughly in half. Iran, which had been suffering severe economic troubles under the sanctions, is eager to begin unrestricted oil exports again, and the market is panicking. In what traders are describing as a “knee-jerk reaction,” the price of oil fell to a low of $27.67 early on Monday, its lowest since 2003, and significantly lower than U.S. oil, which also hit a 2003-low of $28.36.
ANZ bank said that “The lifting of sanctions on Iran should see further downward pressure on oil… in the short term. Iran’s likely strategy in offering discounts to entice customers could see further downward pressure on prices in the near term,” and while this could trigger some sudden jumps in the near future, global prices are likely to take a hit.
The extra oil from Iran is coming in at a time when the market is already suffering from significant oversupply, as suppliers are already providing around a million barrels a day over demand which has resulted in a global drop of more than 75 percent since mid-2014, and more than a quarter since the beginning of 2016 alone. And while analysts predict it will take Iran some time to get their oil infrastructure back up to speed after the sanctions, it’s a known fact that they already have a dozen Very Large Crude Carrier-class vessels loaded and ready to sell to the market.
The prices are already hitting stock markets in general. Asian shares are set to slide to near their 2011 trough levels, and other markets are expected to follow suit, increasing continuing concerns about a global economic downturn.
According to CNN, oil market analysts think that we’re right to be concerned. Matthew Smith, the director of commodity research at ClipperData, said that “the rubber stamping of this deal is just adding another bearish influence to a market already under a lot of bearish influences. It really couldn’t have come at a worse time.”
It is expected that Iran could resume export of their usual million barrels within a year, dumping excess crude oil into an already oversupplied market – and Iranian officials have stated that they’d like to increase output by almost 1.5 million barrels per day, although it’s uncertain that their goal is realistic. After years of running a crippled economy, Iran’s oil fields are suffering from years of underinvestment and while the market is frightened, it remains to be seen if Iran’s claims are more sizzle than steak.
That aside, the concerns over global consequences are real; crashing oil prices have driven a 1,437 plunge in the Dow already this year, and the energy sector is already starting to feel the hit. Jobs are being slashed, and dozens of American oil companies have filed for bankruptcy in the wake of the crash last week to only $30 per barrel.
Meanwhile, anticipating the lifting of sanctions, stock markets in the Middle East have dropped 5 percent in the last week.
Cheap gas may sound great in the short term, but we may need to brace ourselves for some tough economic times ahead.