Oil prices hit their lowest since 2003 on Monday, as the market braced for a jump in Iranian exports after the lifting of sanctions against the country at the weekend.
The U.N. nuclear watchdog on Saturday said Tehran had met its commitments to curtail its nuclear programme, and the United States immediately revoked sanctions that had slashed the OPEC member’s oil exports by around 2 million barrels per day (bpd) since their pre-sanctions 2011 peak to little more than 1 million bpd.
“Iran is now free to sell as much oil as it wants to whomever it likes at whatever price it can get,” said Richard Nephew, program director for Economic Statecraft, Sanctions and Energy Markets at Columbia University’s Center on Global Energy Policy.
Iran is ready to increase its crude exports by 500,000 bpd, its deputy oil minister said on Sunday.
In what traders described as a knee-jerk reaction, international Brent crude fell to $27.67 a barrel early on Monday, its lowest since 2003, before recovering to $28.56 by 0208 GMT, still down over 1 percent from its settlement on Friday.
U.S. crude was down 27 cents at $29.15 a barrel, after hitting a 2003-low of $28.36 earlier in the session.
“The lifting of sanctions on Iran should see further downward pressure on oil … in the short term,” ANZ said on Monday.
“Iran’s likely strategy in offering discounts to entice customers could see further downward pressure on prices in the near term,” the bank added.
Trading data shows that short positions in U.S. crude markets, which would profit from further price falls, have hit a fresh record despite steep recent drops.
While this could trigger sudden price jumps once traders close positions to cash in from further drops, it also indicates that many market participants think there is still more downside to prices.
Iran’s potential new exports come at a time when global markets are already reeling from chronic oversupply as producers pump a million barrels or more of crude every day in excess of demand, pulling down crude prices by over 75 percent since mid-2014 and by over a quarter since the start of 2016.
And although analysts expect Iran to take some time before being able to fully revive its export infrastructure, suffering from years of underinvestment during the sanctions, it does have at least a dozen Very Large Crude Carrier super-tankers filled and in place to sell into the market.
The oil price rout is also hurting stock markets, with Asian shares set to slide to near their 2011 troughs on Monday, stoking further worries about a global economic downturn.
“Growth keeps slowing … Lower commodity prices, including oil, partly reflect weakening demand itself. In addition, the downturn in mining capex and the declining income of commodity producers is weighing on exports from Asia,” said Frederic Neumann, co-head of Asian Economics Research at HSBC, Hong Kong.