Oil outlook seems bleak

The oil price has made somewhat of a recovery today after suffering significant losses in yesterday’s trading session amid news swirling that China intends to increase the amount of oil it buys from Iran which is in breach of US sanctions.

Although this is good news for Iran, the move will do nothing to help the struggling oil price as other countries may decide to lower the costs in which they supply oil to China in order to compete which is likely to drive the price down further.

“Iran would welcome any opportunity to increase its production whether or not it breaches the terms of the U.S. sanctions, but the strategy there would introduce China to a partner over which it doesn’t have an enormous amount of control,” said Edward Bell, Director of Commodities Research at Emirates NBD

“Don’t forget there are other producers that would also be targeting that trade with China, so for instance you could see Iraq or Saudi Arabia step in and try and discount the volumes that they would be exporting to China as a way to circumvent Iran getting that extra market share,” he added.

Looking into the distant future, the oil price may hit another snag with the rise of electric cars with one analyst believing that the price would have to tumble from current levels to be competitive with other alternative energies currently on the market.

Mark Lewis, global head of sustainability research at BNP’s asset management noted that Oil will have fall to between $9 and $10 a barrel in the long-term in order for gasoline cars to remain competitive with clean-powered electric vehicles, and around $17 to$19 a barrel for diesel.

“Our analysis leads to a very stark conclusion for the oil industry. For the same capital outlay today, wind and solar energy will already produce much more useful energy for EVs than will oil purchased on the spot market,” Mr Lewis said.

“These are stunning numbers, and they suggest that the economics of renewables in tandem with EVs are set to become irresistible over the next decade.” He added.

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