Oil prices have fallen sharply in the past year and it has been very good for consumers. Oil producers? Not so much. Due to low oil prices, we have benefited from cheaper airplane tickets and lower gas prices. But will these low oil prices be the norm for the near future? Last week, oil prices fell below $30 per barrel given the prospect of Iranian oil flooding the global oil markets. These fears that the Islamic Republic could add to the world’s oil already oversupply could push oil prices even lower with some experts suggesting $20 per barrel, levels that haven’t been reached since the early 2000’s.
Current crude oil prices are at its lowest level in 12 years. Chart courtesy of Freestockcharts.com
The key drivers of lower oil prices have been high oil inventory levels and concerns that the global economic growth is slowing, particularly China. With Iran set to finally see western-imposed sanctions lifted soon, the Islamic Republic has vowed to return its oil production to pre-sanction levels, with estimates suggesting they could add a further 500,000 barrels a day within weeks. These levels could increase to 1M barrels as they ramp up production. So far, Iran has resisted calls from rival Saudi Arabia to hold back on its production in the face of faltering global energy demand. With OPEC, the world’s oil cartel not coming into any conclusion to decrease production levels, oil prices will most likely continue to fall unless we see some pickup in global demand.
It looks like we could enjoy these low prices for the much foreseeable future.