Crude oil prices had a knee-jerk reaction today when a deal was struck to remove the sanctions on Iranian trade in return for a curb of their nuclear projects.
Brent crude dropped nearly 2% early in the day, lowering to $56.67 per barrel, but landed closer to a 1.3% drop at $57.11. Analysts say the small bounce was due to the realization that it will take time for Iranian oil to impact the global market.
While Iran plans to rise back to 42-43% of their pre-sanction market share, they do not have a massive amount of oil in reserve to flood the market. Tehran has nearly 25 million barrels in storage, but most of this is ultra-light condensate.
Iran will also have to spend some time and money improving and expanding upon their infrastructure, building up investments, and reintroducing themselves as a supplier. London Energy Aspects chief oil analyst Amrita Sen estimates that it will not have a major impact until the second half of 2016.
However, there is a general consensus that oil prices will be staying low for a while. Today’s drop was not a dramatic one, but going into next year the price could slip back below $50 per barrel.
Even Saudi Arabia’s recent assertions that 2016 will bring a more balanced market could be threatened by Iran’s oil, an outcome that Iran and its partners would not be opposed to according to their political agendas.
While the lifting of Iranian sanctions won’t send oil prices into another nosedive right away, be on the lookout for future slips as the country gets back into the swing of the market.
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