The growing number of oil rigs pulled in from the oilfield and stored in this lot in Odessa, Texas is a testament to the steep decline in the price of crude oil in the last year. (Lorne Matalon)
The prospect of Iranian oil adding to the global flood of crude pushed prices further down on Monday, with Brent crude, the international benchmark for crude oil, touching its lowest level since 2003 – below $28 dollars per barrel.
International sanctions against Tehran were lifted over the weekend, and that’ s raising the possibility of an estimated extra half million barrels a day of Iranian crude flooding an already oversupplied market worldwide.
That’s in addition to continuing concern about the Chinese economy. China is the world’s second-biggest oil consumer, and those concerns have already pushed crude down 20% since the beginning of the year.
“It just doesn’t feel like we’ve hit the bottom yet,” says Wall Street Journal energy reporter Russell Gold. Gold is the author of The Boom: How Fracking Ignited the American Energy Revolution and Changed the World.
“Nobody wants to shut down their operations. So what’s happening is that everyone’s continuing to pump, whether it’s an operator in the Permian Basin or in Saudi Arabia. The glut of oil continues and prices keep going down.”
Notwithstanding developments this past weekend in Iran, Gold says there’s no timeline for the ramp-up of Iranian crude oil exports. But concern is already evident.
“The big concern globally is that Iran comes back onto the market in a large way, Saudi Arabia refuses to back down, and you’re talking about a lot more entering a market that’s already saturated with oil.”
Gold says the glut is trumping old notions about supply and demand.
“You can have things like two members of OPEC cutting their diplomatic ties with each other, I’m talking about Saudi Arabia and Iran, and the price of oil goes down!”
“I mean, for someone like me who has watched the oil markets for over a decade, that’s was just sort of stunning to watch that and watch that reaction,” Gold says. “But that’s the kind of world we’re in right now.”
Market issues that need to be addressed include how much Iranian crude is in storage and could be released immediately and how much Iran might discount its oil to regain its lost market share.
– Lorne Matalon