The Global Oil market, already suffering from a supply glut has been anticipating the arrival of Iranian crude Oil for months along with increased production from Iraq as they try to better the countries financial crisis. It is widely understood that Iran was never really out of the Global Oil market. Iran has throughout under the table sold fuel to various Asian buyers, and historically a dollar or so cheaper than global oil prices. Thus Iran has only partially been out of the Global Oil market.
Global crude oil prices recovered as the storm “JONAS” hit USA, claiming about 20 lives, raised speculation of a soar in local sales of Fuel in USA. Thus the rally in crude oil was short lived as increase in Oil supply by Iraq adds to the glut. Although the massive snow storm which shut down New York and Washington on Saturday and saw 11 states of emergency declared across the region is reported to be crossing the Atlantic. If similar speculation as before could be made a short term rally in the crude oil could be expected intra week. The rebound cannot be expected as much as was experienced once the blizzard hit USA. The daily consumption of the United States is near 20 million barrels a day where as the United Kingdom only consumes close to 1.3 million barrels. So even if we contemplate that the demand would double or even triple for that matter will not dramatically affect the Global Crude Oil prices.
Recently Iraq has increased its Oil supply close to 4 million barrels a day in attempt to improve the countries financial condition, leading to another dip in the Global Oil prices and adding to global glut. On the other hand the Republic of Iran has acted smartly in its own interest and other Oil producing countries. As Iran it has yet not released the entire 3 million barrels a day in global market, as was widely speculated.
Iran has said it can quickly bring back 500,000 barrels a day within weeks, but that it plans to do so in a way that will not hurt oil prices. While 500,000 is not huge when compared to the 94 million barrels a day the world consumes each day, Wells Fargo analysts in a new report say the arrival of Iranian crude will cap any oil rally for now. “One big question has been answered. Iran is now back in the oil market, but the question still to be answered in the next couple of weeks which will have a big impact on price is what kind of volumes they can put back on the market once they sell off their floating storage,” said Daniel Yergin, vice chairman of IHS.
Iran and Iraq seemed to act as a bloc at the OPEC meeting last month; with both emphasizing they would not be limited in output. Iran has since modified its comments, saying it would not harm the market as it brings back oil but it is still expected to be aggressive to regain share.
OPEC has a 40% share of Global crude oil market; the 13 member nations have more than 81% of proven Oil reserves of the world. Saudi Arabia, Iran and Iraq account for near 20% of the world crude oil production; Oil of this region is not free of geopolitical agendas/problems. Recently tensions have deescalated slightly between the Shiite run Iran and Iraq and the Sunni dominated Saudi-Arabia. Events like execution of Nimr al-Nimr and others keep both historical rivals in continuous diplomatic deadlock.
The other large Oil producers such as United States and Russia have not slowed down their output, even though US production is expected to take a hit as Oil companies feel the pinch of extended low prices.