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Oil price drops below $28 a barrel

Posted: 21st January 2016 by katinahristova
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The oil price has fallen as low as $27.67- the first time it is below $28 since 2003, while the existing oversupply problem is expected to be worsened by the lifted Western sanctions on Iran. It is predicted that the lifting of the Iran sanctions could result in the production of half a million barrels more oil per day. Analyst Philip Futures says: "The drop was due to the Western sanctions on Iran being lifted. This means we will be seeing a bigger oil glut with Iranian crude exports coming back to the market."

Following the United Nations monitoring agency IAEA’s confirmation that Iran has complied with conditions of the nuclear deal agreed upon this past summer, the sanctions against Iran were lifted last Sunday.  According to the US Energy Information Agency, Iran is the fourth largest oil provider in the world and already has large amount of oil to sell. Adding more oil to the reserves of the country would result in the one million barrels a day of oversupply that has led to a more than 70 % collapse in oil prices since July 2014. The oversupply at the moment and the consequential dramatic drop in the oil price is a result from US shale oil’s recovery. Meanwhile the Chinese economy’s slowdown has caused a drop in the oil demand as well.

With major producers currently going over demand with 2-2.5 million barrels per day, analysts predict the trends of overproduction and low demand to continue, keeping prices low as well. According to HSBS chief executive Stuart Gulliver, the price of oil is highly likely to settle at between $25 and $40 in the next twelve months.

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