Deal with Iran can mean lower prices at gas pump
Lifting of some sanctions will let Iranians export more oil
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.