The world economy is bracing for a glut of oil that could send prices tumbling even further as demand cools while supplies of already-prevalent crude increase as sanctions are lifted on Iran.
With demand from a contracting Chinese economy falling and Iran to resume exports, “unless something changes, the oil market could drown in oversupply,” according to estimates from the International Energy Agency. Though supply from non-OPEC countries is expected to drop by 600,000 barrels a day in 2016, Iran’s re-entry into the market is expected to make up for that decline by midyear.
On Monday, the price of Brent crude fell to $28 a barrel, a 12-year-low, after sanctions were officially lifted on the Islamic Republic Saturday, in accordance with successful negotiations to put the breaks on its nuclear program, reports Bloomberg.
A further slumping oil price could spell trouble for governments that depend heavily on revenues from petroleum, like Russia and Venezuela. The price drop could also spell more trouble for for communities in the United States heavily invested in the oil business, like Houston, Texas. The price of gas, on the other hand, already extremely low in the United States—price wars in at least one Michigan community pushed prices at one station to just $0.47 a gallon—is likely to tumble further yet as oil prices fall.
Even in the face of plummeting oil prices, Saudi Arabia, the world’s biggest oil exporter, promises to continue pumping crude into the market to maintain its market share. With so much crude oil flooding global markets, and no sign of a significant slow down, experts say on-land storage for excess supplies could fill up, forcing stockpiles offhand into long-term storage on tankers at sea.