Oil prices retreat as Iran refuses to freeze output

Oil prices might have propelled above $40 a barrel level in the past week as Iran was expected to join other producers to freeze its oil output. However, it seems to take a longer period for the oil market to resume its past value. Iran's decision against freezing oil output has pushed Brent and crude prices lower again in the commodity market.

Bijan Zanganeh, oil minister of Iran, refused to join oil producers like Venezuela, Qatar, Russia and Saudi Arabia in their effort to reduce over oil supply to the global market by stopping their production. The minister said ISNA news agency that Iran will not halt oil output until it reaches its post-sanctions production target of four million.

Iran, which has just entered the global oil economy after the removal of international sanctions, is looking forward to saving its shattered economy by increasing its oil reserves. BUSINESS INSIDER quoted Trading Economics, which said that 23% of Iran's net economic growth comes from oil production. The country will join other producers in the production halt after reaching its output goal.

Currently, crude is down more than 2%, hitting below $38 a barrel in the commodity market. While the Brent is down below the $40 a barrel level again.

According to The International Energy Agency (IEA), oil prices have likely recovered from its historic slump in January owing to the drop in supply from major oil producers. In addition, the number of oil drilling rig in the US dropped for a 12th successive week to 386 during the past week, reflecting drillers' cost trimming strategy. Meanwhile, banks like Barclays and Goldman Sachs have warned that over supply of nearly 1 million bpd might pull down oil prices once again.

US crude CLci traded at $38.15 a barrel, down 35 cents from the previous price. While, Brent LCOc1 traded at $40.13 per barrel, down 26 cents following a data report, which said that February oil production of Saudi Arabia was close to its record high at 10.22 million barrels a day, as reported by INDEPENDENT. However, market researchers view this price rally as a sign of another demise. They say that this price increase might motivate oil producers to speed up their supply again.

Meanwhile, demand for oil has increased in Asian markets, with India outstripping China in oil consumption.Bloomberg quoted The Oxford Institute for Energy Studies' report, which said that oil consumption in India has increased by 300,000 barrels per day in 2015, almost double the median rate in the past decade.

While, consumption in China has dropped to 300,000 barrels from the median growth rate of 500,000 barrels. China's demand for oil propelled crude prices to over $100 per barrel in the past years, but the ongoing economic slowdown in China combined with the oversupply pulled oil prices down to below $30 per barrel. IEA expects demand in India to reach 4.2 million barrels per day in 2016, beating Japan's demand of 4.1 million barrels.

Market analysts believe that unless OPEC comes forward to limit its supply to the global market, the future of oil prices remain unstable. Iran being the largest oil producers must trim its output to rescue oil from the slump.