HOUSTON – The International Monetary Fund says a resurgence in Iranian oil exports next year could push crude prices down by $5 to $15 a barrel, deepening a market downturn that already has sorely bruised the oil industry.
Iran, which has the world’s fourth-largest oil reserves, expects to pump an additional half-million barrels a day into international markets next year, after the United States and other western powers lift sanctions against its oil exports. It has already shown western oil companies more than 70 energy projects it’s planning.
And though the market has likely baked in some of the impact of Iran’s future exports, crude prices could sink further once the Islamic Republic’s oil production actually begins to rise, the IMF said in a report this week.
U.S. crude edged up 5 cents to $35.86 a barrel in early trading on the New York Mercantile Exchange on Tuesday. The February futures contract replaced the January contract, which settled on Monday at $34.74 a barrel. Brent, the international standard, fell 21 cents to $36.14 a barrel on the ICE Futures Europe, closing in on a new 11-year low.
In its December oil market report earlier this month, the International Energy Agency cited Iran’s extra oil as one factor behind its prediction that global inventories will climb by 300 million barrels next year.
Iran’s exports have fallen by about 1 million barrels a day since 2011, the year before western powers put sanctions on Iran’s exports. Iran had 36 million barrels of oil stored in offshore tankers last month.
The prospect of loosening sanctions help send crude prices down sharply this summer, after the West agreed to lift sanctions in exchange for controls on Iran’s nuclear program. But markets often react to new developments as they happen even if a market-moving event had been telegraphed months in advance.
“While part of this impact may be already discounted in futures markets, a further decline (in oil prices) could materialize when Iran’s exports rise,” the IMF said.
The IMF said the oil market’s reaction to Iran’s return will depend largely on the Organization of the Petroleum Exporting Countries, the 13 member oil cartel that includes Iran. OPEC earlier this month signaled it isn’t ready to curb crude production to support prices, and analysts say it’s unlikely the group will lower its output to make room for the incoming Iran.