Oil at $50

Brent crude oil at ICE Futures Exchange in London hit $50.05 a barrel on Friday afternoon. On Monday, Brent had closed at $42.62 on concerns over Asian markets, but by today it gained back 17% to close over the $50 mark. This is a welcome news for all petrostates, including Iran, which have accounted for higher oil prices in their annual budgets.

Oil Plunging

Oil prices continued their decline for the eighth straight week. Brent crude closed at $42.62 a barrel today. Serious concerns over China’s slowing economy on top of the saturated crude oil market are causing the current downturn with no signs of reversal anytime soon. Even geopolitical factors, including armed conflicts in Iraq, Syria, Libya and Yemen, which would have normally kept the prices high, are having limited impact on the market.

Since late 2014, oil prices dropped by 60 percent, creating fiscal crisis for petrostates whose foreign exchange earnings mainly come from the oil sector. 

Brent Oil at $45

Lowest Since March 2009

Brent crude prices fell to $45.46 per barrel today, while U.S. WTI crude fell to $40.45, the lowest prices for both since March 2009. Oil prices have now extended longest decline since 1986.

Slower demand growth, including the weak demand in China, and global oil glut, including Middle East and U.S. shale oil production, are generally seen as factors driving the prices down. Geopolitical concerns, including the simultaneous wars in Iraq, Syria, Libya and Yemen appear to have limited impact on the current saturated oil market.

These low prices create serious problems for petrostates, including Iran. The current Iranian budget, for example, was revised downward earlier this year to account for oil at $72 per barrel. Brent at $45 (with Iran oil generally lower than Brent) will create serious budgetary issues for the country, especially when it is involved in armed conflicts in Iraq, Syria and Yemen.

Oil Under $50

Brent crude oil prices have dropped generally under $50 a barrel since Thursday. Brent at London futures is trading at $49.79 today. The U.S. WTI crude was at $43.59. Global oversupply, including Middle East production and U.S. shale oil pumping at record levels, and weak China demand are driving prices down. Geopolitical factors, including wars in Iraq, Syria and Yemen appear to have limited impact on saturated crude oil market.

Iran Says It can Boost Oil Output Just Days After Sanctions End

Iran’s Oil Minister Bijan Zanganeh said today in an interview with state TV that Iran can boost oil production “in one week” after international sanctions are lifted. He said production could increase by 500,000 bpd within a week after sanctions and by 1 million bpd within a month following that. Zanganeh warned that OPEC’s refusal to accommodate Iran in export markets would result in lower crude prices. (IRNA/Bloomberg, 2 August)

“Our lost share of market, which was about 1 million barrel a day, will manifest itself,” Zanganeh said. Even if crude prices fall, Iran’s (oil export) revenues will stay the same because exports are due to double, he added. (Shana/Bloomberg, 2 August)

Iran produced an average of 2.85 million barrels a day in July compared with 3.6 million at the end of 2011 when oil and banking sanctions went into effect. The Iranian oil exports declined to 1.4 million bpd after sanctions compared to 2.6 million bpd in 2011.

“Some of the most effective sanctions with regard to the oil industry were those targeted aspects such as sales, volumes, shipment, insurance and the transfer of the money,” Zanganeh said. “If those issues are resolved, Iran will regain the market share that it has lost which amounts to more than one million barrels a day.” (IRNA/Press TV, 2 August)

Amid surplus crude supply, the global benchmark Brent crude fell about 50 percent last year and dropped 2.1 percent on Friday to $52.21 a barrel on the London-based ICE Futures Europe exchange.

File photo: Iran’s Oil Minister Bijan Zanganeh (Atta Kenare/AFP/Getty Images/Bloomberg)

Oil Prices Rise After Ramadi

Oil prices rose on Monday after the Islamic State captured Ramadi, raising fears of deeper turmoil in the oil-producing country. Brent for July delivery was trading at around $67 a barrel this morning.