American and Iranian diplomats have agreed to end sanctions on the world’s largest Shi’ite Muslim country, causing oil prices to tumble as markets feared more crude will be added to global supplies.
Bad news for Saudi Arabia, but good new for Iran which will soon be able to sell oil to eager buyers, especially in Europe. The Wall Street Journal reports that U.S. benchmark … fell as low as $1.83, or 3.6%, to $48.27 a barrel, while the international Brent contact, which had been down about $2, was recently down $2.89, or 5%, at $54.21 a barrel.”
Analysts were initially skeptical diplomats would reach an agreement over Iran’s nuclear program, but once the announcement was made Thursday oil prices tumbled.
“There was skepticism that a real deal could have been reached, but when those headlines came out that they made substantial progress, the market started to sell off,” Phil Flynn with brokerage Price Futures Group told the WSJ.
For months, oil prices are down dramatically from June 2014 when they were over $100 per barrel, but prices tumbled as demand remained weak and supply continued to grow on booming North American oil production. Oil companies, OPEC nations and Russia have been hurting as oil prices force them to make tough decisions.
OPEC could have buoyed prices, but it opted not to cut production last November. Lifting sanctions on Iran have further added to concerns over a global oil “glut” because it could put as many as 1 million barrels per day onto the market.
“This is mildly bearish,” Michael Lynch, president of Strategic Energy & Economic Research, told the Financial Post. “We were expecting more Iranian oil to hit the market regardless of the outcome of the talks.”
While Iran will still have to struggle with low oil prices, it will be more easily able to sell crude on international markets. Saudi Arabia, however, may be less pleased as more oil on the market could mean prices will stay low for a longer period of time.
Obama, however, assured the Saudi king that the U.S. is committed to backing its allies in the region. But that may be small comfort to a country running a $39 billion budget deficit.
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