Global political climate helping oil prices drop

Iran's President Mahmoud Ahmadinejad attends a bilateral meeting with Chinese President Hu Jintao at the Great Hall of the People on June 8, 2012 in Beijing, China. Iran is particularly affected by falling gas prices.

Jeff Horwich: Oil futures down 0.3 percent so far today, and that's no surprise. Oil prices are down about 25 percent in the past few weeks. Those falling oil prices are good for our pocketbooks. They're also good for American foreign policy in some ways.

Here to flesh out that angle is Samuel Ciszuk with KBC Energy Economics in London. Hello.

Samuel Ciszuk: Pleasure.

Horwich: What are the key forces that are pushing oil prices down right now?

Ciszuk: Well you know, it's really the crisis of sentiment right now, and the worries about impact on demand, rather than supply problems; demand destruction results in the U.S., and question over whether China might actually have a hard landing after all.

Horwich: And we have Saudi Arabia doing their part as well to hold prices down, yes?

Ciszuk: Yeah, absolutely. I mean, there is no supply shortage basically. You know, we see a very well-supplied situation, not only because of Saudi Arabia. Iraq is producing much more than previously; Nigeria is stable; and of course, Libya is back to levels close to where it was before the whole uprising. So it's a good situation on the supply side.

Horwich: And why is the falling price of oil especially tough on Iran?

Ciszuk: Well, we see sanctions against Iran, the result of previous packages but also a coming EU embargo and tightening of U.S. sanctions, which will all happen at the end of June and early July. Right now, a lot of former clients of Iran, buying their crude, are just stepping away -- they can't touch Iranian crude. Particularly of the European Union members but also a lot of Asian clients, actually, because of the rather wide sanctions -- making it hard to transfer any money; making it hard to ensure any dealings with Iran; etc. So we see a lot of former buyers stepping away and Iranian exports are falling. They might actually have halved by now.

Horwich: Samuel Ciszuk with KBC Energy Economics in London, thanks very much.

Ciszuk: Thank you, pleasure.

 

About the author

Jeff Horwich is the interim host of Marketplace Morning Report and a sometime-Marketplace reporter.

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