With end to Iran oil embargo, worries grow in Saudi Arabia

WASHINGTON -- A new wave of oil from Iran will flow into a global market awash in oil where prices are plunging to depths not seen in a dozen years.

See Full Article

With a historic nuclear deal between Iran, the U.S. and five other world powers set into place this weekend, a European oil embargo on the world's seventh-largest oil producer will end.

The impact may be felt widely when crude begins trading in Asian markets Monday, but the return of Iran to global energy markets created tremors even before the first trade was made. Saudi Arabia's stock market plunged more than 5 percent Sunday. Saudi Arabia is the biggest oil producer within OPEC, the oil cartel with waning influence to which Iran also belongs.

Saturday was dubbed Implementation Day, when Iran was freed from international sanctions after being deemed as having dismantled most of its nuclear program under the deal established last summer. "Implementation Day for the nuclear agreement means a new oil day for Iran," Daniel Yergin, vice chairman of research firm IHS and author of a Pulitzer Prize-winning book on the history of oil, said Sunday.

The oil market has anticipated the unchained tide of Iranian oil for months, and some of that may be reflected in new lows for oil prices in the past week. U.S. crude oil prices have trended down for a year and a half, and have fallen almost 40 percent in just the past three months. On Friday, the price slid 6 percent to $29.42 a barrel. That compares with a high of over $100 a barrel in the summer of 2014, and close to $150 per barrel before the U.S. recession.

There are predictions of barrels going for $20 soon.

Falling crude prices have led to lower prices for gasoline, diesel, jet fuel and heating oil. This has helped boost consumer spirits and encourage spending, but may also have slowed the overall recovery of the U.S. economy last year as major energy companies slash investments and jobs. The astonishing fall of oil has created jitters globally as economic growth for a major consumer, China, ebbs. That has rippled to U.S. stock markets as well over apprehension that the economic contagion will spread.

For Iranian oil, a big question is how much and how fast. Already, some 38 million barrels of oil are in Iran's floating reserves, ready to enter the market, according to the International Energy Agency. Iran has signaled it aims to put as much as 1 million to 1.5 million barrels daily into the market. But the IEA estimates that 400,000 to 500,000 barrels a day is more likely; some experts see 300,000 or so barrels coming in during the next six months.

In any amount, "it's coming at a time when the market is still oversupplied," said Larry Goldstein, director of the Energy Policy Research Foundation, who predicted a decline in oil in 2014.

That could mean even more acute pressure on U.S. oil drilling companies to cut back on new projects and jobs.

It's hard to know precisely what shape Iran's oil fields are in. The IEA estimates that Iran's crude oil production capacity at 3.6 million barrels a day, which is 800,000 more than current levels produced.

"We will try to maximize our crude export capacity to Europe and restore 42 percent to 43 percent share in the European market before the sanctions were imposed," Mohsen Qamsari, director of international affairs at Iran's national oil company, was quoted as saying in Iran's official news agency.

The fight for control of global oil markets in OPEC and outside of the cartel is entering a new phase, according to Yergin.

Nothing is certain, however, as a new global landscape for energy emerges. Among the biggest wild cards right now is OPEC member Venezuela, which "is about to fall apart," said energy economist Philip Verleger.

New economic data from the country's central bank shows an economy in shambles and annualized inflation surging into triple digits. Experts say Venezuela is dangerously close to just breaking even on the oil it produces, which accounts for 95 percent of export earnings.

A major power failure in the fall knocked out its biggest oil refining complex. Lost production could offset a 300,000-barrel-per-day increase by Iran, Verleger said.



Advertisements

Latest Economic News

  • Moody's cuts China credit rating over rising debt

    Economic CBC News
    The Moody's ratings agency on Wednesday cut China's credit rating due to surging debt, prompting a protest by Beijing and highlighting challenges faced by communist leaders as they overhaul a slowing economy. The downgrade adds to warnings about China's reliance on credit to propel growth after the 2008 global crisis. Source
  • 'The Bank of Canada is not spooked' : Why the central bank is holding rates steady

    Economic CBC News
    The Bank of Canada kept its benchmark interest rate steady on Wednesday, but signalled that could change once the weak U.S. economy starts to rebound as expected through the latter part of the year. Canada's central bank kept its target for the overnight rate steady at 0.5 per cent on Wednesday, the same level it's been at since the middle of 2015, because the economy isn't showing any signs of needing any more or any less stimulus. Source
  • Ottawa offers $950 million for 'superclusters' to create jobs

    Economic CBC News
    The federal government is spending $950 million to fund an "Innovation Superclusters Initiative" that it says will "create more middle-class jobs and more opportunities for Canadian businesses to grow into globally successful brands." Minister of innovation, science and economic development Navdeep Bains made the announcement at the offices of BlackBerry QNX in Kanata, Ont. Source
  • 'Do you want to get thrown off?': Airlines can prohibit passengers from shooting video

    Economic CTV News
    DALLAS -- Without the shocking video, it's unlikely that the world would have learned or cared about the violent manhandling of a 69-year-old man on a plane last month. The outrage on social media, the mea culpa by an airline CEO, the promise to treat customers better -- none of it would have happened. Source
  • OPEC likely to extend output cuts, but price relief elusive

    Economic CTV News
    VIENNA -- OPEC oil ministers meeting this week appear damned if they don't extend production cuts -- and only slightly less damned if they do. Ministers of the 13-nation cartel will likely decide to prolong them in an effort to support prices, when they meet Thursday. Source
  • Women CEOs earned more last year, but few were in top job

    Economic CTV News
    NEW YORK -- Women CEOs earned big bucks last year, but there's still very few of them running the world's largest companies. The median pay for a female CEO was US$13.1 million last year, up 9 per cent from 2015, according to an analysis by executive data firm Equilar and The Associated Press. Source
  • Home Capital draws $250 million more from emergency line of credit

    Economic CTV News
    TORONTO - Home Capital Group says it has drawn down a further $250 million this week from its emergency line of credit to repay deposit notes due Wednesday. That leaves the Toronto-based mortgage company (TSX:HCG) with $350 million left from a $2 billion line of credit provided by the Healthcare of Ontario Pension Plan late last month. Source
  • BMO hikes dividend as profit rises 28%

    Economic CBC News
    The Bank of Montreal had $1.25 billion of net income in its second quarter. That's up 28 per cent from $973 million during the same period last year. Revenue was $5.74 billion, up from $5.10 billion a year ago. Source
  • Quebec's construction sector hit by mass walkout

    Economic CTV News
    MONTREAL - A union alliance representing about 175,000 Quebec construction workers has launched an unlimited general strike. The walkout began after construction companies and labour federations continued to negotiate ahead of a strike deadline of midnight Tuesday, but were unable to sign new collective agreements. Source
  • Quebec's construction sector grinds to halt with mass walkout

    Economic CTV News
    MONTREAL -- Quebec construction sites fell idle Wednesday after a union alliance representing about 175,000 workers launched an unlimited general strike, crippling activity on major projects such as the Champlain Bridge and a Montreal superhospital. Source