(CNBC) An Iranian oil tanker, moored at the port of Assaluyeh for more than a year, set sail for South Korea last week, heralding a new period of uncertainty for world crude prices.
The global oil market, already suffering a supply glut, has been anticipating the arrival of Iranian crude for months, and now that sanctions against its nuclear program have been lifted, Iran is free to sell more of its oil into a market already oversupplied by 1.5 million barrels or more a day.
At the same time, neighboring Iraq promises to produce even more than its current 3.7 million to 3.8 million barrels a day, a recent record. Reports that Iraq could produce more than 4 million barrels a day weighed on energy prices Monday. West Texas Intermediate crude fell 5.8 percent to $30.34 per barrel.
Saudi Arabia, the world’s biggest exporter, has pledged to keep its approximately 10.2 million barrels a day of output steady — or even raise it — unless other producers agree to cut back, an unlikely outcome.
Other OPEC members in the Gulf, like Kuwait and the United Arab Emirates, have stood behind Saudi Arabia, which drove the more-than-year-old policy of letting the market set prices, rather than the cartel’s traditional tactic of attempting to control them with production levels.
But it’s Iran and Iraq as well as Saudi Arabia that are most capable of adding to OPEC supply, about a third of the world’s daily oil output. While Iraq may be close to its limit, officials have said they could add several hundred thousand more barrels a day.
“Those three have to find a way to come together. They have to find a way to sort this out. The Iranians have become more reticent. I think the Iraqis are going to get every last barrel out because of their financial situation. There’s nothing that gives them a better outlook than oil,” said Helima Croft, global head of commodities strategy at RBC Capital Markets.
Croft said it is difficult to separate the geopolitics from oil when discussing Iran and Saudi Arabia, facing the worst relations in decades. Iran blames Saudi Arabia for executing a Shiite cleric, who was hostile to the Saudi royal family.
Former U.S. Energy Secretary and New Mexico Gov. Bill Richardson said Saudi Arabia is key to the oil price, and if it agrees to an emergency OPEC meeting and production cuts that would change the dynamic. But […]