With an Iranian nuclear deal looming on the horizon, oil prices will have one more reason to remain in a slump.
Producers including Exxon Mobil (NYSE:XOM) and Chevron (NYSE:CVX) cut their 2015 budgets and shale drillers put wells on hiatus to counter a global glut that sparked oil’s rout in 2014. But those actions have yet to convince traders that the market will find balance soon.
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The ongoing negotiations with Iran, coupled with new reports of rising oil production, have reinforced projections that call for continued pressure on oil prices.
U.S. crude oil futures were trading 32 cents lower at $52.42 a barrel on Monday, rebounding from a low of $51.26 earlier in the session. Brent crude, the international benchmark, slipped 49 cents to $58.51 a barrel.
An agreement between six nations and Iran over the country’s nuclear program would lift sanctions on Iranian oil exports, thereby flooding a market that observers already view as oversupplied.
“The big story today is this potential Iranian deal [and] how much that is going to bring oil back onto the market,” PRICE Futures Group’s Phil Flynn said on FOX Business Network’s “Mornings with Maria.”
Jamie Webster, senior director of global crude oil markets at IHS, said the influx of Iranian oil would create a larger gap between supply and demand.
On Friday, the International Energy Agency said “the bottom of the market may still be ahead” amid slow demand, adding that oil prices will likely face downward pressure until late next year. Oil from Iran could push the timeline into 2017, Webster said.
The Organization of the Petroleum Exporting Countries said its total production rose in June as Saudi Arabia, the largest producer among OPEC nations, pumped oil at a record pace. OPEC said its members produced 31.38 million barrels a day, more than its target of 30 million barrels a day.
A separate report on Monday from North Dakota showed that the state’s oil production in May, the last full month of available data, climbed month-to-month to 1.2 million barrels a day. The figure marks North Dakota’s second-highest month of production, even though the number of active rigs in the Bakken and other shale plays has dropped by more than half.
According to OPEC, total U.S. oil output is poised to keep climbing even though shale drillers have pulled back. Growth is forecasted to reach 330,000 barrels a day in 2015 and 280,000 barrels a day in 2016.
Webster explained how changes to capital spending typically affect projects that are years away. Budget changes by shale producers have a more immediate impact since it takes just four months on average before oil begins to flow.
“We do expect much weaker supply growth next year, but with that said, you’ve still got supply largely outstripping demand in 2016,” Webster said.
OPEC believes demand for its oil will be weaker than expected this year, although the oil cartel raised its forecast for global consumption in 2015 and expects demand to grow at a faster rate next year.
The IEA takes a different view, saying oil demand worldwide will slow to 1.2 million barrels a day in 2016. This year, demand will average 1.4 million barrels a day, based on IEA data.