Iran, oil, and the game of the big players
Remember a year ago when the Brent Crude used to be 110 dollars a barrel? Well, now it's half of that, 55 dollars. And the WTI recently even reached 50. Way earlier than Iran had exported even one extra barrel of the black gold.
There'll be a lot of time before Iran starts exporting noticeable quantities of crude oil. First the drilling facilities and pipelines that've been shut down due to the embargo will have to be reopened. The experts estimate that Iran will be able to produce up to half a million barrels of crude daily by the end of 2016. To put this into perspective, OPEC produces 30 million. So don't count on Iran tiling the game any time soon.
There are also some other reasons for the plunging prices. Like increased US production, and decreased Chinese demand. Contrary to expectation, the US production is not diminishing, and has now reached early-70s levels.
The US increased their oil production by 16% last year, 516 million tons. This made America the 3rd largest oil producer in the world, after the Saudis and Russia. But we should note that almost half of this is being produced through the expensive and highly controversial fracking method.
Then, there's China, whose economy is no longer developing as dynamically as anticipated. This is affecting the demand for crude oil, which is also not as strong as previously expected. Let's add the unstable situation in the fast developing BRICS countries (Russia included), and we can see where this decrease in demand is coming from.
Besides, the OPEC has been pursuing a new policy lately. In the past they usd to maintain high prices through controlled low production - way below their technical capabilities. In result, they were able to deliberately maintain high prices, and realise big profit.
But now OPEC is not the hugely influential organisation it used to be in the past, since it's now covering just 40% of global demand with an annual output of 1.7 billion. That doesn't mean the cartel is not playing a significant role in the production and delivery of crude oil. Now the OPEC countries are deliberately extracting more oil in an attempt to push some of their competitors off board - like those pesky frackers.
Yep, the US is the major challenger here. There was a time the Saudis were using volume of production as a tool for manipulating the market and maintaining stable prices. Now they're compelled to produce 10 billion barrels daily, obviously with the purpose of responding to the challenge and bringing the prices down to a point where US and Canadian fracking would go out of business.
Apart from overproduction and low demand, there are some other factors affecting the global crude oil prices. For example, economic growth in the industrialised countries no longer depends so heavily on oil consumption. Countries like Germany, the EU juggernaut, have registered a 2% drop in fuel consumption - mainly because they're using fuels more efficiently now. Granted, that can't be said for all parts of the world - it's mainly valid for the developed countries. But it's not like those don't make up for the bulk of the consumption anyway.
The observers are expecting that demand will increase between 35-50% in the next 20 years. But in the meantime, there's a remarkable phenomenon taking place: increased demand isn't leading to dwindling global reserves - just on the contrary. Oil deposits seem to be increasing every next year, despite the high global daily consumption of 90 million barrels, and contrary to all "peak oil" predictions. This is due to both conventional production in the Atlantic and around the African and South American shores, and new technologies like fracking. Canada is playing a significant role in this respect as well - alongside the US. Canada produces 3 million barrels daily through non-conventional technologies, which are earning an ever more significant place in the global mix. And that process is going to become ever more pronounced with time, despite the countering measures of the big players.
That still won't stop OPEC from their power-play, of course. They still have all the tools to be flexing muscles, until they've made sure the collapsing oil prices have kicked most US fracking companies off board - even the biggest ones. The Saudis and their proxies may've learned the lesson from the 80s, and they won't be decreasing the output any time soon. So, this oil price war is going to continue for a while.