Wednesday, July 15, 2015

Nuclear deal with Iran could lead to $2 gas

Oil prices that slumped steeply earlier this year may decline again once this week's historic deal between the West and Iran allows that country to start pouring more crude into a market already brimming with supply.

Many analysts estimate that Iran, OPEC's fourth-largest oil producer, has piled up tens of millions of barrels on floating barges that can be exported in fairly short order after sanctions have been lifted. The country will follow that with increased production from its oil fields.

Tom Kloza, chief oil analyst with the Oil Price Information Service told CNN that in a few months we could see big savings at the pump.

"Once we get past Labor Day, we should see gas falling by 10 to 15 cents a month," Kloza said. "By December a lot of places are going to see gasoline at $2 or less."

Oil prices are affected by multiple factors, however, and lower gas prices aren't assured. Energy prices can depend on production levels in other countries, currency rates and demand sparked by the health of global economies. Plus there are questions about the state of Iran's oil infrastructure and its ability to increase production.

Iran produced about 2.8 million barrels a day last month, but its oil exports have fallen to about 1.1 million barrels since sanctions were enforced in 2012. The country's oil fields are estimated to be capable of raising daily production to 3.4 million to 3.6 million barrels within months of sanctions being lifted, according to the International Energy Agency's July oil market report.

However, potential roadblocks stand in the way. Sanctions likely will be eased slowly, and the Iranians may find it harder than they expected to bump up production, said Amy Myers Jaffe, an energy consultant and executive director for energy and sustainability at the University of California, Davis.

She noted that sanctions made it difficult for the country to obtain spare parts and assistance in operating its oil fields. Oil is essentially harder to extract from Iran's fields than from those in other countries like Iraq, and international oil companies planning to start production there need to be wary of problems like corruption.

"Companies are going to have to be very careful about how they go in," she said. "There's just this bureaucratic bottleneck that comes from trying to do contracting with international companies ... and those things can go very slowly."

Oil industry analyst Blake Fernandez expects Iran's production to grow gradually, with the country adding about 600,000 barrels a day through 2017. Over the long term, that additional volume may have a more limited impact on price if demand for oil continues to grow by an expected rate of approximately 1 million barrels a day.

The Associated Press contributed to this report.

No comments:

Post a Comment