By Ahmad Ghaddar and Roslan Khasawneh, Reuters on Business Day Live
Photo: Thinkstock on Business Day Live
Western sanctions against Tehran were lifted over the weekend, and it is expected to raise exports by 500,000 barrels per day in next few months
LONDON/SINGAPORE — Oil prices hit their lowest since 2003 on Monday, as the market braced for additional Iranian exports after the lifting of sanctions against the country over the weekend.
The US and European Union on Saturday revoked sanctions that had cut Iran’s oil exports by about 2-million barrels per day since their pre-sanctions 2011 peak to little more than 1-million barrels per day.
Iran, a member of the Organisation of the Petroleum Exporting Countries (Opec), said on Sunday that it was ready to increase exports by 500,000 barrels per day.
Worries about Iran’s return to an already oversupplied oil market drove down Brent crude to $27.67 a barrel early on Monday, its lowest since 2003. The benchmark was at $28.59 by 9.21 GMT, down 38c from its settlement on Friday.
US crude was down 38c at $29.04 a barrel, not far from a 2003 low of $28.36 hit earlier in the session.
"Iranian exports come at a very bad time," Barclays analysts said.
HSBC CEO Stuart Gulliver, meanwhile, said the price of oil was likely to settle between $25 and $40 in a year’s time.
"Major producers are currently delivering between 2-million and 2.5-million barrels per day more than demand, so the question is how long they can continue to overproduce at that level," he said at the Asia Financial Forum in Hong Kong on Monday.
While some analysts see an initial increase of 500,000 barrels per day or more in Iranian exports as easy to achieve, further production increases are considered a challenging.
"Iran needs significant foreign investment and technology to repair and build out its production potential," Morgan Stanley said. But the bank believed that Iran was capable of adding 600,000 barrels per day to the market initially.
Iran has at least a dozen Very Large Crude Carrier super-tankers filled and in place to sell to the market, and traders are betting that oil prices will drop again.
Data shows that short positions in US crude markets, which would profit from further price falls, have hit a record high.
Since the market is strongly one dimensional with net shorts at a record high, it could face further downside potential in the short term, Energy Aspects analyst Virendra Chauhan said.
The lifting of sanctions will unlock more than $100bn in Iranian frozen funds, permitting Iran to finance imports.
Iranian President Hassan Rouhani plans to visit Italy and France next week on his first European trip since sanctions were lifted, a diplomatic source said on Monday.
"The legs of Iran’s economy are now free of the chains of sanctions and it’s time to build and grow," Mr Rouhani tweeted on Sunday.
Iran’s transport minister said that Tehran planned to purchase 114 aircraft from Airbus.