The price of oil dropped on Tuesday as investors reacted to the deal between Iran and the West, which will open the door for Iranian crude to flood into an already saturated market. The deal was announced on Tuesday morning, after the Asian markets closed. According to the details given so far, the sanctions on the oil industry in Iran will be lifted from the day the deal comes into effect.
A survey of oil analysts carried out by Reuters news agency suggested Iran could then increase its oil exports by up to 60% within a year. The EU and US imposed sanctions on the Iranian oil industry in the late 2000s, banning the import, purchase and transport of oil and gas from the country.The restrictions were in response to the country’s oil enrichment programme, which Western powers feared would give the Iranian government access to nuclear weaponry.
Iran holds the fourth-largest reserves of oil globally and has millions of barrels in reserve, ready to immediately enter the market once restrictions are relaxed. The Brent North Sea crude price for delivery in August shed 75 cents to stand at $57.10 a barrel in London on Tuesday afternoon, while the US benchmark West Texas Intermediate for August delivery fell $1.05 to $51.15.
Even before the deal was announced losses were registered, with the Brent crude price for August dropped 60 cents to $57.25 a barrel on Tuesday afternoon trading in Asia and the US benchmark West Texas Intermediate for August delivery fell 75 cents to $51.45.Just last week the world energy watchdog, the International Energy Agency (IEA), warned that the demand for oil was likely to drop in 2016 due to an already oversaturated market, leading to a further drop in prices.
The value of oil is already a concern with the price of a barrel of Brent crude having fallen from a peak of $115 over the last year. “The bottom of the market may still be ahead,” the agency said, after what was its first assessment of oil consumption for 2016, agencies report.