Iran is eager to flood the Oil market: WTI drops below $ 29

January 19, 2016

E.U. together with the United States have finally removed the sanctions against Iran. The Shiah country gets back more than$50B of reserves frozen in accounts overseas as well as an opportunity to reclaim its share on the Oil market.

The decision was immediately priced into the markets, sending Oil below the $29 level to $28.36, which is the lowest price from November 2003. According to the statement of Amir Hossein Zamaninia, deputy oil minister for commerce and international affairs: Iran will increase the oil output to 500,000 barrels a day in six months, “without intention to pressure Oil prices”.
Iran presents a serious force on the Oil market having an enormous amount of Oil accumulated in its internal reserves and eager to get buyers for it.

Although, these actions will inevitably lead to an increase of the market surplus, Saudi Arabia’s Oil Minister Ali al-Naimi expressed his hope that OPEC members will reach a consensus on production limits and thus stabilize the market soon.

The news on Iran’s sanctions relief has had a devastating effect on Saudi Arabian stocks. National stock exchange Tadawuldropped by almost 7%, from 5,838 to 5,520 points, impacting 164 out of 167 Saudi companies.

With the current political confrontation between Sunni and Shiah countries, Oil market can be used as a way of applying pressure on both sides.

A recent attempt of the Saudi nation to improve the situation by considering the option of IPO for Aramco may become insufficient in current circumstances. This might force Saudi Arabia to resume discussions with OPEC members regardingproduction limits.

We expect Oil prices heading towards $25 level with actual supplies of Iranian Oil on the market.

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