Most people complain about the high price of fuel such as petrol and diesel. The price of oil also seems to have climbed a lot over recent years. Well, one can’t help but notice that those prices are now starting to come back down.
The laws of economics state that prices will go down when there is more supply than demand in the market. That is precisely what is happening with the price of oil. Of course, other reasons are affecting the price of oil too. For instance, the troubles in the Middle East are making many investors nervous.
And then we have the recent Iranian nuclear deal. The lifting of sanctions in the country has meant Iran can now export lots of oil abroad. In fact, 86% of Iran’s exports are oil and gas. But, just how much does this recent deal with the international community affect oil?
Oil prices will drop further – but not just yet
While oil prices are low at the moment, they will undoubtedly become lower in the future. Some people assume that Iran will start shipping millions of barrels of oil right now. But, that’s not going to be the case just yet, believe it or not.
The trouble with being a clandestine nation is your infrastructure will soon become old. That means investment must get made to upgrade it before increasing production. One thing that Iran expert Mark Dubowitz notes is the country has stockpiles of oil. After all; there’s only so much oil that can get sold on the black market!
They can start selling some of those reserves to build up the money needed to improve oil production. It’s likely the unfreezing of $500 billion worth of assets will also help in that respect too.
Oil production WILL increase
Once things get back to normal for Iran’s oil export market, we can expect to have more oil at our disposal. The country wants to supply more than half of Europe’s oil as it once did before the sanctions.
That fact alone will spell bad news for countries like Saudi Arabia that are rich with oil. With growing tensions in the country, it’s likely Europe will buy more oil from Iran in the future.
The other main oil-producing countries are no-go areas due to civil wars and ISIS.
China is likely to buy oil from Iran
With the demand for consumer goods rising, more oil is needed to create plastics. China is perhaps the world’s biggest producer of consumer goods and so will need more oil to cope.
It makes sense for China to buy its extra oil from Iran, given that they are closer than Saudi Arabia, for example. Lower transport costs will mean lower oil prices for China.
There is no denying that Iran has now reached a turning point in its history. With relations growing in the West, it will soon become one of the fastest emerging markets in the world. While it won’t change much now, Iran will no doubt have a significant influence on the price and supply of oil in the future.