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Global oil prices fell Wednesday on a variety of factors — including the resumption of some exports from Libya (which has been experiencing civil unrest); rising U.S. stockpiles; and anticipation of progress in nuclear talks with Iran.
In Geneva, top diplomats from the U.S., Russia, China, France, Britain, and Germany resumed negotiations, after talks earlier this month reportedly came close to achieving a preliminary agreement. Such an agreement would impose further restrictions and monitoring on Iran’s nuclear program, in exchange for lifting some economic sanctions. Those sanctions have crippled Iran’s economy — and kept a lot of oil bottled up inside Iran due to strict export limits.
Global energy markets are anticipating the possible lifting of those sanctions. On Wednesday, Brent Crude fell the most it has in two weeks, to $106.62/barrel. U.S. crude futures traded yesterday at a five-and-a-half-month low of 92.43/barrel, before rising modestly today.
The world oil market already has a lot of supply. Saudi crude production is at a high-point since the government began record-keeping in 2002, at 10 million barrels/day. U.S. production in North Dakota is now close to 1 million barrels/day.
Any preliminary deal with Iran would not initially unleash new Iranian oil into world markets. But it would likely free up Iranian oil revenues that have been frozen in foreign banks by international sanctions. And that could whet the appetite of global oil traders, says Axel Busch of Energy Intelligence in London.
“If things go well today or tomorrow and we get a preliminary agreement, then there will be an immediate drop of some $5/barrel to $6/barrel,” Busch says.
But Busch thinks the more significant impact will come if negotiations proceed to a comprehensive deal on Iran’s nuclear program, six months or more down the road.
“Then the next step would be a lifting of the embargo on oil exports,” Busch. “That would release 1 million barrels/day relatively quickly. The market would react very quickly indeed once that comes in.” Busch adds, though, that Iran would have to restart mothballed oil wells and processing facilities, so the oil wouldn’t hit the market all at once.
In the U.S., oil and gasoline prices have been falling — but not in anticipation of more Iranian exports hitting world markets. Instead, the fracking boom — especially in North Dakota — is sending a glut of domestic oil to refineries nationwide. U.S. drivers are now paying $3.21/gallon on average for gasoline. That’s down $0.14 over the past month, and down $0.21 over the past year.