Oil prices rose on Monday, recovering from a 2003 low as the market braced for additional Iranian exports after the lifting of sanctions against the country over the weekend.
The United States and European Union on Saturday revoked sanctions that had cut Iran’s oil exports by about 2 million barrels per day (bpd) since their pre-sanctions 2011 peak to little more than 1 million bpd.
Iran, a member of the Organization of the Petroleum Exporting Countries (OPEC), issued an order on Monday to increase production by 500,000 bpd, the country’s deputy oil minister said.
Worries about Iran’s return to an already oversupplied oil market drove down Brent crude to $27.67 a barrel early on Monday, its lowest since 2003. The benchmark was at $29.28 by 1158 GMT, up 33 cents from Friday’s close.
U.S. crude was up 23 cents at $29.65 a barrel, not far from a 2003 low of $28.36 hit earlier in the session.
But oil prices recovered later in the session, with analysts suggesting the return or Iranian exports has already been priced in.
“We were watching Asia when it opened, in terms of how markets digested (the news) over the weekend, and it did suggest to a fair degree that it (the lifting of sanctions) has been priced in,” said Miswin Mahesh, of Barclays Capital.
In a further sign of he pain low prices is inflicting on oil producers, OPEC forecast that supply outside the organisation would decline by 660,000 bpd in 2016, led by the United States. Last month OPEC predicted a drop of 380,000 bpd.
HSBC Chief Executive Stuart Gulliver said the price of oil is likely to settle between $25 and $40 in a year’s time.
“Major producers are currently delivering 2-2.5 million bpd more than demand, so the question is how long they can continue to overproduce at that level.” he said at the Asia Financial Forum in Hong Kong on Monday.
Iran has at least a dozen Very Large Crude Carrier super-tankers filled and in place to sell into the market, and traders are betting that oil prices will drop again.
The lifting of sanctions will unlock more than $100 billion in Iranian frozen funds, permitting Iran to finance imports.
Iranian President Hassan Rouhani plans to visit Italy and France next week on his first European trip since sanctions were lifted, a diplomatic source said on Monday.
“The legs of Iran’s economy are now free of the chains of sanctions and it’s time to build and grow,” Rouhani tweeted on Sunday.
Iran’s transport minister said that Tehran plans to purchase 114 aircraft from Airbus.