Can Oil Prices Fall Further if Iran Joins OPEC’s Production Cut?

Crude oil prices slipped 1 percent on Monday. The short-term rising trend in oil prices has again been broken. It is expected that prices will be tested against the support of $47.50 to $48 during the next few days. The highest level could be $50. As soon as the rising prices resume, the prices could be hitting $57 to $57.50. US Shale oil production could hit the highest output figure in two years in May. This could lead to a fall in prices.

Oil Prices

The recent uptrend in oil prices have begun due to the Vienna agreement between OPEC and 13 other nations. The countries collectively decided to cut down production to stabilize oil prices, which took a beating after 2014. Iran, which was earlier exempted from the cuts, has now decided to join the cartel’s reduced output agreement.

Iran’s Approval to Production Cuts

 

Bijan Zanganeh, Oil Minister of Iran, addressed the media yesterday, citing his approval to the Vienna agreement. He stated that the country is ready to opt for reduced outputs if the cartel members continue abiding the consensus. The original Vienna agreement was set to be in force for 6 months. However, it appears that a timid rise in prices is forcing the cartel members for an extension. The details of the Vienna agreement conformation are still unknown. We do not know whether cuts will be made to daily outputs or monthly output and to what extent.

Why Does Iran Approve the Cuts Now?

 

The country was exempted from the production cuts as it did not reach sufficient levels of production till then. It could increase its production to 4 million barrels while other reduced output till May 25. As Iran now conforms to the agreement, we can safely assume that it has reached a comfortable oil output figure. The country is now trying to work on its energy sector and drive growth for the economy. In January, it produced 3.78 million barrels, which increased to 3.82 million barrels in February. In March, the figure was 3.79 million barrels. It has shortlisted 29 oil companies that will explore possibilities for the development of the country’s energy sector.

What Will Happen to Oil Prices?

 

Economists remain positive about oil prices throughout 2017. Brent prices are expected to be in $60 to $65 per barrel range if the cartels extend their production cuts. So far, Saudi and Russia have been complying with the cuts while Iraq and a few others complied haphazardly. With Iran joining the cuts, it is likely that the prices will rise. Libya, Syria, and North Korea could pose a threat to the prices this year. However, the overall sentiment is favorable.