Market Awaiting Iranian Crude

Market Awaiting Iranian CrudeMarket Awaiting Iranian Crude

US President Barack Obama's signature foreign-policy initiative, the historic nuclear deal with Iran, appears poised to fend off Congressional opposition for a second week in a row.

After several Democratic lawmakers in the US Senate came out in support of the Iran deal in recent days, the survival of the accord is all but assured, Charles Kennedy wrote for OilPrice.

Democratic Senators Ron Wyden, Richard Blumenthal and Gary Peters all announced their support for the nuclear deal with Iran, bringing the number of senators who have backed the deal to 41, enough to withstand attempts by Republicans to derail the agreement.

Iran and six world powers reached a historic deal on July 14 in Vienna, Austria, that would limit the Persian Gulf country’s nuclear program in return for removing sanctions on its energy and financial industries.

That could lead to the revival of Iran's oil industry, potentially allowing Iran to ramp up oil production and exports. Estimates vary, but Iranian officials are making ambitious statements about its comeback.

Iranian Oil Minister Bijan Namdar Zanganeh has said the Islamic Republic will be able to ramp up oil production by 500,000 barrels a day immediately after international sanctions are removed, followed by an additional 500,000 barrels a day not too long after that.

"We should sell our oil whether the price falls or goes to $100 (a barrel). Even though we would like to sell our oil more expensively, the price is determined by the market," Zanganeh said last month.

"After lifting sanctions, Iran will take back the market share of more than 1 million barrels a day that it lost," he said.

Iran plans to ultimately boost crude output by as much as 3.9 million barrels a day in the wake of lifting the sanctions.

The US Congress has until Thursday to act on the Iran deal, after which it loses the ability to take action. With the White House now in the driver's seat, the agreement will most likely take effect. That means that sanctions could be removed by the end of this year or early 2016.

For oil prices, the potential for Iran to bring a flood of crude back on line amounts to another blow to the possibility for a strong rebound.

US oil production is declining, but not fast enough. Global oil demand is rising, but also not quite enough to soak up excess production.

If and when Iran brings more supplies back on stream, that will push off an oil market adjustment a bit further into the future.

Such a scenario has been expected, but with Democratic support now squarely behind the deal in the US Congress, it is a near certainty.