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Marketplace Morning Report

Iranian oil gush could push prices down

Mitchell Hartman Jul 15, 2015
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The nuclear deal announced Tuesday between Iran and six world powers will eventually lead to severe international economic sanctions on Iran being lifted, and more Iranian oil and natural gas flowing onto world energy markets — assuming that the accord is not blocked by opponents in Washington or Tehran.

It will likely be late 2015 before any additional Iranian oil starts being sold legitimately on the world market. Iran reportedly has 20 million to 40 million barrels of oil stored in tankers ready to hit the market. Within one year, experts predict the country can pump an additional 500,000 barrels a day to nearly 1 million barrels a day from wells that were slowed down or plugged up because of sanctions.

Suzanne Maloney, a former State Department official who is now a fellow at the Brookings Institution, says Iran will try to ramp up production and improve its oil infrastructure as fast as possible. “The Iranians are really hungry for Western investment and capital and technology,” she says, adding that Iran is a good investment target for major international energy companies. “You don’t have the same security challenges in Iran that you have in Iraq or Libya.” She also says Iran may eventually provide a counterweight to the influence of Russia in supplying oil and gas to energy-poor countries in Eastern and Southern Europe.

Iran will sell its oil mostly to its traditional regional customers in Europe and Asia. But the oil market is global, so supplies, which are already over abundant due to the global economic slowdown and high production levels in the U.S. and many OPEC countries, will likely rise even more in coming years, says Jim Burkhard, vice president of energy analysis at IHS Energy. He predicts that will put downward pressure on prices consumers pay in the U.S.

“The most important component of U.S. gasoline prices is the international price of crude oil,” says Burkhard. “So if international crude oil prices were to soften even more, we would see that reflected in pump prices in the United States.”

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