Last week, the big news was the US and its Western allies coming to an agreement with Iran over sanctions.
Following this news, analysts in the oil market immediately began to ask what an open Iran could mean for markets.
On Tuesday, the US Energy Information Administration chimed in with its answer: $US5-$US15 a barrel.
In its latest short-term energy outlook, the EIA said:
On April 2, Iran and the five permanent members of the United Nations Security Council plus Germany (P5+1) reached a framework agreement that could result in the lifting of oil related sanctions against Iran. Lifting sanctions could substantially change the [short-term energy outlook] forecast for oil supply, demand, and prices by allowing a significantly increased volume of Iranian barrels to enter the market. If and when sanctions are lifted, the baseline forecast for world crude oil prices in 2016 could be reduced $US5-$US15/barrel (bbl) from the level presented in this STEO.
In its latest report, the EIA sees West Texas Intermediate crude oil prices — the US benchmark — in 2016 at around $US70 a barrel, with futures contracts currently indicating prices will fall closer to $US60 a barrel.
The EIA added:
Iran is believed to hold at least 30 million barrels in storage, and EIA believes Iran has the technical capability to ramp up crude oil production by at least 700,000 bbl/day (bbl/d) by the end of 2016. The pace and magnitude at which those volumes would reach the market would depend on the terms of a final agreement.
Of course, what exactly the framework agreement with Iran will ultimately guarantee, either for Iran or the US and its allies, remains unclear.
But with oil prices about 50% lower than when they were a year ago, even the potential for Iran’s supply to further disrupt markets is something that bears close watching.
On Tuesday, WTI crude prices were up about 3% to around $US53 a barrel.