REPORT ON THE NEWS OF HOW IRANS NUCLEAR DEAL WILL INFLUENCE OIL PRICES

Summary                                                                                                                                                 Iran is said to have accumulated approximately 3.8million barrels of oil in storage and another 35 million tonnes of oil in anchored vessels and has said it can increase its production by up to 500000 barrels per day within one month. Many stake holders agree that Realizing this oil into the market could have great effects on world oil prices, even though other factors, like
shale oil production cost, economic situation of countries, and amount of production from other OPEC countries, could come into play. Some players maintain that oil prices will only experience a change in 2016 when Iran’s oil will is released into the market.                                                                                                                                        

Introduction

News of the signing of the joint comprehensive action plan better known as the Iran nuclear deal signed in Vienna on July 14 2015 between Iran and five permanent members of the UN security council, It is expected to activate the release of a large amount of Iranian oil into the oil market early 2016 .It has caused ripples and reaction from key players in the industry. Prequel to the signing of the deal the united nation had prohibited its members from the purchase of Iranian crude, amongst other sanctions. Iran was a major player in the oil and gas industry, the 3^rd largest producer of oil in the world .Before the sanctions in 2012 Iran supplied about 2.6million barrels a day to ever 8 nations, most of whom have had to get their oil elsewhere since the sanctions were made in 2012.This report discuses the likely effects of this deal on the world oil prices amongst other factors.

The cost of shale which is an alternative to oil is hinted by some analysts to affect oil prices more than Iran’s return. Cost of shale production which is almost equal to that of crude is between 50$ and 60$ per barrel, and is expected to drop even further due to technological advances in drilling operations. Drilling time and efficiency is also expected to increase in shale production. In anticipation of Iran’s oil hitting the markets early 2016, other crude oil producing countries may have taken or will take anticipatory steps, and come to agreement to control production so as to maintain the price of oil even as Iran resumes business. Oil prices will as always be affected by demand which depends on the state of the economies of countries that purchase this oil. Iranian oil when released may have to be supplied at lower prices to compete with heavy and steady supply its customers are receiving at the moment. This is also expected to further reduce oil prices.   

Above all other factors, OPEC will play a very important role in stabilizing the oil market as Iran returns, by carefully analyzing the dynamics of the situation and taking steps as a body to prevent the return of Iranian oil from destabilizing the oil market.