In early trading on Monday, January 18, 2016, oil prices hit new lows, ones they haven’t seen since 2003. It came on the back of UN authorities lifting the international sanctions on Iran on Friday, January 15, 2016. UN authorities said that Tehran has met its commitments and curtailed its nuclear program. The United States immediately canceled its sanctions that had reduced OPEC’s (Organization of the Petroleum Exporting Countries) oil exports by around 2 million barrels per day since 2011.
Increase of Iran’s market share in OPEC
After Iran’s sanctions were lifted, market expectations for more downside in crude oil also increased. This indicates an increase in Iran’s market share in OPEC. The news also indicates more oil in the market. The crude oil market is already facing a supply glut due to the huge production of OPEC members, specifically Saudi Arabia.
We could expect a political understanding between Iran and Saudi Arabia if they want to stabilize crude oil prices. Both countries are major OPEC exporting countries.
Iran can now sell as much oil as it likes. According to Iran’s oil minister, Iran is ready to increase its crude oil exports by 500,000 barrels per day. Iran’s strategy for offering discounts to customers in Europe (EZU) (FEZ) and Asia could see further downside pressure on oil prices in the near future. The above graph shows the movement of the United States Oil ETF (USO).
Major indexes fell
The SPDR S&P 500 ETF (SPY), the iShares MSCI Japan ETF (EWJ), and the iShares MSCI Emerging Markets ETF (EEM) fell 2.5%, 2.8%, and 3.9%, respectively, on Friday, January 15. Major stocks such as JP Morgan (JPM), Wells Fargo (WFC), and Morgan Stanley (MS) fell 2%, 3.6%, and 4.3%, respectively, that day.
In the next part of this series, we’ll take a look at performances of various industries of the SPDR Euro STOXX 50 ETF (FEZ) as of January 15, 2016.