An Iran without sanctions with aims to flood the oil-awash market could push oil prices down to $20 per barrel, according to experts.
On Saturday, the sanctions on Iran due to its nuclear program were removed in accordance with a deal with world powers.
Iranian officials reiterated their will to increase their oil exports by 500 thousand barrels per day and a production increase by 1 million barrels by the end of 2016.
'Extra Iranian supplies will add to the current global surplus. If on top of this, mild winter weather returns during the first quarter, we could easily see Brent going down to $20 per barrel,' Cuneyt Kazokoglu, an oil expert from Facts Global Energy consultancy firm, told Anadolu Agency in an emailed interview.
Kazokoglu also said Iran can increase its exports in a short timeframe since it holds more than 40 million barrels in floating offshore storage - the majority of which is in condensate oil.
The country, which expects to see large foreign investment, can also increase its oil production by up to 3.5 million barrels per day at the end of the year.
Director of oil markets and downstream department at IHS, Spencer Welch said he expects a slower return than what Iranian officials have stated.
'At IHS we expect an additional 400,000 barrels per day by mid-2016,' Welch said.
'Why slower? – Because the production wells have been shut-in for three to four years and so it won’t be so easy to ramp up production. Plus Iran needs to find buyers for the oil in an already over-supplied market,' he added.
'We think an additional one million barrels per day would take a considerable period of time, well in excess of a year to achieve,' he asserted, unlike Iranian oil officials who declared this as a goal to be accomplished by the end of 2016.
'A lot of the returning Iranian barrels have already been priced into the market so a fall to $20 per barrel is unlikely, not impossible but certainly not sustainable,' Welch said.
'In fact the returning Iranian crude may actually have a small bullish [price gain] impact, particularly if the speed of return is slower than announced in public statements,' he added.
- 'Sentiment drives markets'
Christopher Haines, a senior oil analyst at BMI Research Company, said Iran's impact could plunge prices lower testing the $20 per barrel scenario.
Prices are not driven merely by market dynamics but rather by sentiment as markets have seen a 20 percent drop below $30 barrel since the new year without any major changes in supply-demand fundamentals, according to Haines.
With oil coming out of Iran, Haines said 'I think it will be a stretch to push crude prices a further 50 percent lower to test the $20 per barrel mark.'
He also noted that the slowing Chinese economy - the world's second biggest oil consumer - is a 'pertinent factor' in crude oil markets as when its industry slows down, oil demand decreases globally.
By Furkan Naci Top
Anadolu Agency