Iranian crude – another headache for oil market – Battle for mkt share to continue

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While the oil industry is going down, the American shale oil industry is developing. To add to this problem, a big supplier of oil has appeared in the oil market to shake this sector in a huge way.

Iran is on the verge of entering the market with an oil production rate higher than what it was before. It is coming with full force under the knowledge that it can cause oil prices to fall below $50 per barrel.

Iran knows ahead of time that it must find new market share. Currently, the price level is second priority compared to higher production volume. Any price level will be acceptable to Iran as long as cash pours into the country and its economy will grow at any rate. However, this represents a new headache for the oil market, as Iran is challenging other oil producers to act fast.

International oil companies are eager to do business again with Iran but under new and better terms. It seems the oil companies have learnt their lessons and want to stand firm without losing money as per their previous ‘buy-back’ agreement. Oil companies know that the country is in a hurry to catch up and reach more than 5 million barrels by year 2020 before Iraq’s oil production reaches the level of competing with Iran.

Therefore, it is not the shale oil but the conventional oil from three members of OPEC including Libya that will cause the oil producers to fight among themselves for gaining and maintaining higher market share. This is bound to be hard, unless the demand for oil increases to more than 1.7 million barrels per day in the coming years and continue to stay around 2 million barrels in order for the oil prices to increase to above $60 per barrel.

However, for the next two years, the oil prices will be $50 or below depending on the arrival of new Iranian oil by the end of first quarter.

Meanwhile, the competition for new market share is ongoing. Saudi Arabia, which is the biggest member of OPEC, captured some share in the Polish market, shocking the latter’s traditional main supplier Russia. This could spread to other former communist countries, leading to an open fight for market shares.

Iran’s announcement that oil prices could reach $45 can be considered as a clear message to force oil producers to come together and revive the current weak oil market; if not, Iran will push for maximum oil production to flood the market and force the oil prices to drop further.

This fight between price and market share will continue until further notice, becoming a nightmare for all oil producers.

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By Kamel Al-Harami

Independent Oil Analyst

This news has been read 6324 times!