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Iran’s Crude Oil May Flood the International Market

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Jan. 4 2016, Updated 11:18 a.m. ET

Iran may lower the price of crude oil

Iran’s petroleum minister has stated that the country is planning to raise the crude oil output by one million barrels a day after the sanctions are lifted. The statement comes after the execution of Shiite cleric Nimr al-Nimr by Saudi authorities. Although the execution was carried out on terrorism charges, it could be adding fuel to a growing Shia and Sunni conflict in the region. A more divided Middle East could mean plenty of oil in the market. Another possibility is that Saudi Arabia could face hurdles for transporting crude oil through the Bab el-Mandeb strait.

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The Middle East region is a net exporter, and there are important factors that lead it to dominate the international crude oil market. This series will discuss the growing rivalry between Iran and Saudi Arabia. We’ll focus on moving averages and analysts estimates for different energy streams along with a discussion on renewable sources of energy. Renewable sources of energy may be the way to reduce dependence on crude oil imports and insulate developed and emerging economies from the volatility of the crude oil market.

Sanctions may be lifted

The leadership in Tehran is confident that sanctions may be lifted sooner or later in this year. Experts feel that this gives Iran a chance to gain regional leadership in the Middle East. The region is currently dominated by an Arab alliance led by Saudi Arabia. The sanctions relief could give some control back to Iranian banks and other domestic industries to access the global market.

The United States Oil Fund (USO) fell 46% as of December 31, 2015. Also, the SPDR S&P Oil & Gas Exploration & Production ETF (XOP) fell 37% on a year-to-date (or YTD) basis as of December 31, 2015. Upstream stocks Pioneer Natural Resources (PXD), ConocoPhillips (COP), and Anadarko Petroleum (APC) fell 16%, 33%, and 41%, respectively, on a YTD basis. The graph above shows XOP’s performance in 2015.

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