How Iran’s Crude Oil Production Could Ruin the Crude Oil Market
Iran’s crude oil production
Iran produced 2.8 MMbpd (million barrels per day) of crude oil in November 2015. Iran’s crude oil production peaked at 5.5 MMbpd during the late 1970s. However, civil war and lower investments in Iran led to a catastrophic fall in the country’s crude oil production. Since 2011, Iran’s crude oil production has fallen due to Western oil sanctions, which led Iran to lose its position as the second largest producer within OPEC (Organization of the Petroleum Exporting Countries). Iran has 10% of global crude oil reserves and 13% of OPEC’s crude oil reserves.
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Iran’s game plan
The easing of oil sanction means Iran could scale up production as soon as possible. Preliminary estimates suggest Iran could scale up production by 0.5 MMbpd–1 MMbpd in 2016. Iran is searching for strategic ventures with major oil companies such as BP (BP), Royal Dutch Shell (RDS.A), Total (TOT), Eni (ENI), Repsol, and OMV. Iran is luring oil giants with new long-term petroleum contracts and attractive perks.
An increase in oil production from Iran could add to the glut market and put further pressure on crude oil prices. This could send oil prices to new lows, despite the fact that oil prices are already trading at an 11-year low. For more on this, read the series Why History Suggests that Crude Oil May Be Low for Next 2 Decades. Lower oil prices would affect the margins of oil producers like ConocoPhillips (COP), ExxonMobil (XOM), Chevron (CVX), and Pioneer Natural Resources (PXD).
Oil tracking ETFs like the United States Oil Fund (USO) and the ProShares Ultra Bloomberg Crude Oil ETF (UCO) are also influenced by lower oil prices. Read how the US dollar could weigh on oil prices in 2016 in the next part of this series.