The dramatic fall in oil prices is continuing apace, with the end of sanctions on Iran being the most recent factor to push the price downward. Earlier this month it was reported that prices had briefly dipped below the US$30 per barrel mark before picking up above this point, but now just a few days later prices have dipped decidedly past the US$30 mark and now stand below US$28 per barrel. Furthermore, some predictions suggest prices could still have a long way to fall yet.
Oil prices have been falling for some months now, and the drop in international prices has been drastic. More than 70% of the value of oil has been wiped out since mid-2014.
The lifting of Western sanctions on Iran came into effect on Sunday, following the IAEA – the international nuclear regulator – deciding that the country had fully complied with a deal designed to prevent the development of nuclear weapons. The removal of sanctions has resulted in the return of Iranian oil exports, and this has the potential to do a lot more to reduce the value of crude oil. The US Energy information Agency claims that Iran is home to the world’s fouth-largest known oil reserves, and the removal of sanctions could enable production of an extra 500,000 barrels per day. This could exacerbate existing problems of oversupply and further reduce the price of this key commodity. The lifting of sanctions is reportedly the key cause of the most recent drop, and the resulting increase in supply could still potentially continue to push prices lower.
International benchmark price Brent Crude has now hit the lowest value since 2003, hitting a price of just US$27.67 per barrel at its weakest point so far. US crude is currently carries a slightly higher value of US$28.86. The loss in prices is largely caused by significant oversupply. To date, this has been primarily the result of large amounts of shale oil from the US entering the market. The significant oil production capabilities of Iran could do much to further increase supply.
Excess supply and resultant low oil prices are expected to persist for the next two years. At the consumer level, the plummeting oil price has been well-received as it has meant significant reductions in fuel prices. Many businesses have also benefited from low oil prices. Businesses dealing in oil, however, have predictably suffered and the fall in prices has been very hard on the economies of countries that are highly active in oil production. This could, in turn, start to hit other national economies, including that of the UK, by reducing exports to countries that have been forced to tighten their purse strings as a result of the drastic fall in oil prices.