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Iran Oil Surprise Blindsides Market

The world is seemingly awash in oil.

We have U.S. production continuing to climb despite oil companies’ cutbacks. Output is nearly 9.5 million barrels per day (bpd), the most in 30 years.

The Energy Information Administration says that 2014’s production rise by 1.2 million bpd was the biggest annual increase since recordkeeping began in 1900!

Overseas, hard times are hitting the Russian refinery sector. Less oil refined leaves more oil for export.

James Henderson of the Oxford Institute for Energy Studies told Bloomberg that Russian exports could increase by 5%. That would be the largest yearly jump in shipments in at least a decade.

Add to that the fact that the Saudis are still pumping like mad. Saudi Arabia recently confirmed that its output was around 10 million bpd – close to an all-time high!

That really isn’t a surprise – the Saudis have made it clear that they don’t intend to cut their output for months.

But there’s one big surprise that will keep the market in a glut for the foreseeable future. And it’s lurking just over the horizon…

Waiting to Turn on the Spigot

That surprise may come from Iran, which is in nuclear negotiations with the United States. If Iran reaches an agreement and sanctions are at least partially lifted, look out for a flood of oil from the country.

You see, sanctions have limited Iran’s oil exports to only about one million bpd. Since oil sanctions began in mid-2012, Iran has been storing lots of oil, both onshore and offshore in huge oil supertankers.

While estimates vary somewhat, Reuters reports that Iran is storing at least 30 million barrels of oil offshore. It’s believed that there are 15 supertankers owned by Iran’s NITC, with two million barrels of oil each, sitting in the Persian Gulf.

Iran will likely sell this oil as soon as it possibly can, since sanctions have hit its economy hard.

When that happens, Iran’s oil will hit a market that’s already oversupplied. It’s possible the surplus could swell by as much as 30%!

The best estimates say this oil would come onto the market three to six months after sanctions are eased.

And that’s just the tip of an oil iceberg…

The International Energy Agency (IEA) estimates it would take less than a year to get Iran’s oil fields from their current production level of 800,000 bpd up to their full capacity of 3.6 million bpd.

The IEA also says that an additional one million barrels could be put on the market within a few months of sanctions being removed.

If sanctions are eased, the most pessimistic forecasts for these events put the time frame at six months to a year from the time sanctions are lifted.

If that comes to pass, the oil market will remain well supplied for the foreseeable future.

Surely, oil price bulls must be thinking, “When it rains, it pours.” Oil, that is.

And the chase continues,

Tim Maverick

Tim Maverick

, Senior Correspondent

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