Deal with Iran can mean lower prices at gas pump

Lift­ing of some sanc­tions will let Ira­ni­ans ex­port more oil

The Washington Times Daily - - Business - BY TIM DE­VANEY

The Obama ad­min­is­tra­tion’s deal with Iran to slow the coun­try’s nu­clear pro­duc­tion ac­tiv­i­ties could be good news for driv­ers just in time for hol­i­day-sea­son driv­ing.

The price of Brent crude oil at one point fell by 2.7 per­cent Mon­day to about $108 per bar­rel as the mar­kets re­sponded to the news that the U.S. was lift­ing some of the sanc­tions against Iran, though it rose back to $111 by day’s end.

The deal, which will limit Tehran’s nu­clear pro­gram over the next six months and lays the frame­work for a more-com­pre­hen­sive set­tle­ment, doesn’t di­rectly in­crease Iran’s oil ex­ports but some of the sanc­tions be­ing lifted had in­di­rectly ham­pered Ira­nian oil ex­ports and crip­pled its petroleum in­dus­try.

If Iran can fire up its ex­ports again, some an­a­lysts say the price of oil could con­tinue to sink as low as $90 in the com­ing year.

“It could ac­tu­ally mean lower prices, if Iran be­gins to get its oil back on the in­ter­na­tional mar­ket,” said Lon An­der­son, spokesman for AAA Mid-At­lantic. “When you com­bine that with all the ad­di­tional crude that the United States is bring­ing to the mar­ket, it should en­sure that we will have a very well sup­plied mar­ket, which should help keep prices down.”

In a move that was de­signed to pres­sure Iran to drop its nu­clear am­bi­tions, the Obama ad­min­is­tra­tion placed sanc­tions on Iran that lim­ited the busi­ness the U.S. and other coun­tries could do with Iran, which hurt its econ­omy. Oil sales made up 80 per­cent of Iran’s ex­ports last year even de­spite lim­its on fi­nan­cial trans­ac­tions that had made it dif­fi­cult for other coun­tries to buy Iran’s oil.

Iran was pro­duc­ing 4 mil­lion bar­rels of oil per day at its peak. By early 2012, that num­ber had dropped to 2.5 mil­lion bar­rels per day, and fell even fur­ther in Oc­to­ber to be­low 1 mil­lion bar­rels per day, cost­ing the Is­lamic repub­lic $5 bil­lion a month in oil sales, ac­cord­ing to the some ad­min­is­tra­tion es­ti­mates.

This will take time to build back up, but ac­cord­ing to an es­ti­mate by ClearView’s Book, Iran could in­crease sales by about 285,000 bar­rels per day over the next month.

The Obama ad­min­is­tra­tion’s pres­sure may have worked in bring­ing Iran to the ne­go­ti­at­ing ta­ble, but it also led to even higher gas prices and the price of crude soared. Re­moval of sanc­tions can only be good news for driv­ers around the world.

“Any time we in­crease oil pro­duc­tion in the Mid­dle East, it gen­er­ally has a fa­vor­able im­pact on oil prices,” Mr. An­der­son said. “If this im­proves their abil­ity to ex­port oil, it will in­crease world sup­ply on the mar­ket, which should re­duce the oil prices.”

Apart from any ob­jec­tive ef­fects on sup­ply and com­merce, the nu­clear deal be­tween Iran and six world pow­ers also likely will have a calm­ing psy­cho­log­i­cal ef­fect of mar­kets.

Fear cir­cu­lated among some in­vestors that the dis­pute over the Ira­nian nu­clear weapons pro­gram might start a war. Iran has threat­ened that un­der those cir­cum­stances, it would block the Straits of Hor­muz, a nar­row chan­nel through which also passes much of the oil ex­ported by Saudi Ara­bia, Iraq and sev­eral smaller Per­sian Gulf States, about 20 per­cent of the world’s sup­ply.

“The per­cep­tion, whether ac­cu­rate or not, that next year’s sur­plus could be sup­ple­mented by ad­di­tional Ira­nian bar­rels will be bear­ish for prices,” Ju­dith Dwarkin, di­rec­tor of en­ergy re­search at ITG In­vest­ment Re­search, told re­porters.

Newspapers in English

Newspapers from USA

© PressReader. All rights reserved.