Why Iran Is a Problem for the Oil Market

An Iranian oil tanker, moored at the port of Assaluyeh for more than a year, set sail for South Korea last week, heralding a new period of uncertainty for world crude prices.

The global oil market, already suffering a supply glut, has been anticipating the arrival of Iranian crude for months, and now that sanctions against its nuclear program have been lifted, Iran is free to sell more of its oil into a market already oversupplied by 1.5 million barrels or more a day.

At the same time, neighboring Iraq promises to produce even more than its current 3.7 million to 3.8 million barrels a day, a recent record. Reports that Iraq could produce more than 4 million barrels a day weighed on energy prices Monday. West Texas Intermediate crude fell 5.8 percent to $30.34 per barrel.

Saudi Arabia, the world’s biggest exporter, has pledged to keep its approximately 10.2 million barrels a day of output steady — or even raise it — unless other producers agree to cut back, an unlikely outcome.

Other OPEC members in the Gulf, like Kuwait and the United Arab Emirates, have stood behind Saudi Arabia, which drove the more-than-year-old policy of letting the market set prices, rather than the cartel’s traditional tactic of attempting to control them with production levels.

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Craig Erlam
Based in London, England, Craig Erlam joined OANDA in 2015 as a Market Analyst. With more than five years' experience as a financial market analyst and trader, he focuses on both fundamental and technical analysis while conducting macroeconomic commentary. He has been published by The Financial Times, Reuters, the BBC and The Telegraph, and he also appears regularly as a guest commentator on Bloomberg TV, CNBC, FOX Business and BNN. Craig holds a full membership to the Society of Technical Analysts and he is recognized as a Certified Financial Technician by the International Federation of Technical Analysts.