There has been much fuss lately as to the huge impact a deal with Iran will have on oil prices globally. I personally see the near-term impact on oil markets likely to be far less significant than most oil analysts predict, despite Iran’s large natural gas and oil reserves. The bottom line is that a deal with Iran would likely add only about 500,000 barrels/day to the 90-million-barrel daily oil market over the next 12 months. This would be a non-trivial amount, but clearly not a “game changer”. The baseline is for prices to return to about $70 for a barrel of Brent Crude in 2016. Oil Geopolitics and Iran
Additional supply from Iran would knock roughly $5/barrel off expectations – or less than one quarter of a standard deviation. Said another way, additional Iranian output could move prices lower, but many other factors, such as changes in global GDP or the return of Libyan oil, could prove more meaningful over the next year. What’s more, recent trading suggests the market has already priced in much of this risk. Over the longer term, I believe an increase in Iranian output could be for sure significant.