An Iranian Nuclear Deal Can Sink Global Oil Prices

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By Jacob Maslow

national flag of IranRecently, the price of Brent crude fell by 5%. This is due to speculation that a deal regarding Iran’s nuclear ambitions could lead to sanctions being lifted. The main impact of the elimination of Iranian sanctions is an almost immediate increase in the amount of oil Iran will export. This can produce a massive upward pressure on already glutted global oil inventories. Of course, the biggest oil glut exists in the United States, where, thanks to fracking and Canadian tar sands oil extraction technology, US oil supplies are at their 80-year highs. All this fear of increased global oil supplies, thanks to the lifting of Iranian sanctions, is putting downward pressure on the global price of oil.

As I’ve already mentioned earlier, the issue regarding global oil prices isn’t really going to turn much on supply as it is on consumption. Keep in mind that in previous points in history, there was a lot of supply, but that completely got soaked up because the global economy was heating up. It’s just a question of recalibrating both these trends to produce an upward trajectory in oil prices once again.

Another thing to learn from history is that once the price of oil gets either depressed or increased, it takes several years to break the pattern. You have to remember that global oil consumption patterns started cooling even while oil was still over the $100-per-barrel mark. It took until the fateful OPEC meeting late last year to finally torpedo the price of oil finally. The price of oil tends to remain stuck within a range until a massive external factor, mixed with sustained demand or supply factors, keep it at a new level. It took a while for oil to crash below $100 per barrel; it’s going to take a while for oil to break out of its current price range.

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