Oil may get a price shock from Iran’s reentry

Iran is reentering into the world market in full swing. After the West imposed sanctions are removed today, the OPEC member can engage the market with its traditional product-crude oil. The Persian Gulf country was the second largest producer of oil in the OPEC in 2011.

Iran has made limited supplies during the sanction period; but was unable to make an impact as its production was quite low.

Now, Tehran is expected to add around 2 million barrels of crude per day, and it will become the fourth largest producer after Russia, Saudi Arabia and the US. Production is expected to peak after six months from now and reports indicate that Iran is not wary of the present low price of crude.

Now crude is trading below $30; its twelve year low. Market is dominated by glut and oil is not giving stability to the producing countries.

But waiting too much or limiting production may not reward Iran as there is no consensus to cut production. Within the oil cartel OPEC, Saudi Arabia is not relenting on its supply war with non-OPEC producers US and Russia. Iran already in conflict with it Arab neighbor may add only to the present glut.

There are different opinions about the price impact of Iran’s reentry. Some observers believe that Iran’s entry is already adjusted into low prices. At the same time, few others point out that Iran’s full swing production may happen only few quarters from now and it may keep crude at a new low and stable level.