Hence, regarding recent historical accord between the OPEC and non-OPEC members for about 558,000 barrels per day cut in the output by the non-OPEC states and 1.2 million barrels per day by the OPEC side, have brought the market into a condition to experience fresh developments.
Market jitters and the supply-demand disequilibrium over recent years led to price slump down to the level of 26 dollars a barrel in January 2016 from about 110 dollars a barrel in 2014. Despite cut in the oil oversupply and the balance caused for former accords, oil is predicted to be sold for 50 to 65 dollars a barrel and it is satisfactory for the oil producing states regarding value of oil in 2015.
Of course, regarding the estimates of oil supply and demand by the OPEC and the International Energy Agency (IEA), it can be expected that as of the second half of 2017, market will be balanced in terms of supply and demand and the oversupply will keep falling.
Analyzing Iran's economy in macro level, the most important component which should be taken into consideration is analysis of the world oil markets. Oil in Iranian economy has a two-way impact on the economic growth. For the first, it is one of the main sources of income, addressing considerable portion of government income in the budget. Another point is that as a strategic good, it has indirect impact on other products of the country.
Of course, the impact of oil on Iranian economy should not be taken as confined in the two domains. The monetary policies in Iranian economy have in the past been harshly affected by the oil price shocks: In certain junctures, it has encouraged increase in the volume of liquidity in the country, provoking fluctuations in the financial market in that respect.
Since oil revenues reserve a splendid position materialization of government income as the next year budget shows, analysis of factors effective in it is of significance. In general, two scenarios can be envisaged for oil pride as of next year: The first scenario is no fundamental change in oil price and the second scenario is the oil price hike.
The first scenario pegs the price for each barrel of oil at 40 to 50 dollars. The major factors effective in materialization of the scenario is non-adherence of the major oil producers (both in the OPEC and non-OPEC camps) to the agreement between the OPEC and non-OPEC side in Vienna for an estimated daily cut of 1.8 barrels per day in the product and secondly, growth in production of the shale oil.
Among other factors affecting oil prices in the above-mentioned period can be falling global demand with respect to economic growth of countries and improvement of security conditions in the producing states.
Based on the second scenario, it is predicted that the oil prices will be fluctuating in the range of 50 and 60 dollars a barrel. The main conditions arising the hypothesis are such factors as adherence of all the OPEC and non-OPEC states to oil freeze agreement. Among other factors affecting growth in the oil price are the increase up to the level more than the figures predicted for the world oil demand next year. Add to it escalation of political crises in the Middle East and widening tensions in the region, which serve as other oil price shocks.
To close this story, let's refer to the recent oil freeze historical accord. It seems that players in the scene would be committed to benefit from oil sale through management of the supply and eventually increase in the prices. So, regarding the conditions and norms devised in the session, it seems that violation of the regulations formulated for both the OPEC and non-OPEC states will be far from expectation. So, it seems the second scenario will be more possible to be met.
Economic activists' concern over the prospect of oil market in the future and the impact of price fluctuations on various business professions, prompted us to provide an unprecedented opportunity for links of such key factors as investors and economic activists on the one hand and decision makers in the macroeconomic level on the other hand.
By: Servin Aqajani, Senior Energy Expert and Middle East Economic Advisor
