Oil prices reached a 2003 low below $28 per barrel on Monday as the market braced for a rise in Iranian exports after the lifting of sanctions against Tehran over the weekend.
CNBC and several local outlets reported that prices at two gas stations in Houghton Lake, Michigan, had dropped to below a half-dollar per gallon, while a nearby Citgo was filling cars for 95 cents a gallon. "There have been long lines at the stations for most of the weekend, according to the three stations, with police officers directing traffic in the area due to the congestion."
The United States 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 LCOc1 to $27.67 a barrel early on Monday, its lowest since 2003. The benchmark was down 12 cents at $28.82 by 1537 GMT.
U.S. crude CLc1 was down 27 cents at $29.15 a barrel, not far from a 2003 low of $28.36 hit earlier in the session.
"Iran’s return to the oil market has been on the agenda for some time and therefore does not really come as any great surprise," Commerzbank senior analyst Carsten Fritsch said in a note.
"Nonetheless, prices were bound to react negatively in the short term in view of the negative market sentiment," Fritsch added.
Analysts expect Iran will realistically be able to export an extra 500,000 bpd in the short term from storage, but there are doubts whether the state of Iranian oil infrastructure will allow further boosts anytime soon.
SEB Markets assumes Iranian oil output will rise by 400,000 bpd to 3.2 million bpd in 2016, while Tehran has said it will add 1 million bpd to its existing output by the year-end.
Iran has at least a dozen Very Large Crude Carrier super-tankers filled and in place to sell into the market.
In a sign of the pain low prices are inflicting on oil producers, OPEC forecast that supply outside the organization would decline by 660,000 bpd in 2016, led by the United States. Last month OPEC predicted a drop of 380,000 bpd.
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