BRIGGS: The Iran Agreement Is A Two-Headed Monster

The United States oil market took a drastic fall in November of 2014 due to a very specific reason. The Organization of Petroleum Exporting Countries (OPEC) decided at their Fall meeting that they would not be reducing the amount of crude oil exported on the world market, but indeed, they would be increasing the output by their participating countries.

Production and prices simultaneously fell across the previously productive shale oil plays around the United States. The price of crude oil dropped from $115 down to around $47. While it has crept back into the mid-$50 range, most producers are finding this price to still be unprofitable. OPEC had one goal in mind and that was to reduce the U.S. oil production market share at the global level – and they succeeded.

Now that we have a brief reminder of how the industry arrived at this downturn, we can fast-forward to this week’s announcement from the White House of an agreement being reached with Iran. The agreement on the surface is to reduce Iran’s ability to produce nuclear arms and to lift export sanctions on their ability to export crude oil. How does this impact American oil and gas producers?

This agreement is a two-headed monster for the United States’ oil market. Not only does this agreement allow Iran to dump more crude oil into an already flooded market, but also it reminds American producers that they still are not allowed to export their own crude oil supplies.

For starters, the United States has a crude oil export ban in place that was established in the 1970’s. The market has changed, the demand has changed, the need for greater national security has changed, and yet we will still have a ban in place that does not allow our vast supply of crude oil to be exported on the world market. But we are now lifting export sanctions on Iran’s ability to export crude oil?

In addition to our own export problem, the pink elephant must be addressed regarding Iran dumping oil into the world market. How much will they contribute you might ask? For starters, Iran will add 500,000 barrels of oil a day to the world crude oil market. Media reports are now saying that this number will likely double in the next year to over 1 million barrels a day. In addition to these figures, Iran reported to OPEC that they have around 30 million barrels of oil sitting on tankers ready to send to market.

Saudi Arabia had hinted that if Iran was able to begin exporting again, that the Saudis would reduce its daily output. Thus far, the Saudis have not been too concerned with reducing output, so only time will tell if they indeed draw back on production.

This agreement by the Obama White House ultimately does one thing for the U.S. oil market: it further perpetuates an already economy-devastating situation for the oil and gas industry. This agreement also shows our weakness from a national security standpoint by allowing a known political enemy, Iran, the ability to further dilute the American economy.



Interested in more national news? We've got you covered! See More National News
Previous Article
Next Article

Trending on The Hayride