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Watch for Dropping Oil Prices as Sanctions on Iran Dissipate

By Joel South and Taylor Muckerman – Jan 15, 2014 at 4:29PM

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Sanctions on Iranian products are going to the wayside, and this could push crude oil prices lower, as OPEC will likely produce more than its self-prescribed crude oil cap.

For the time being, it appears that Iran has come to an agreement with six world powers to stop producing weapons grade nuclear fuel in exchange for reduced sanctions on the OPEC member. While reduced Middle East tension is great for diplomacy, OPEC will need to negotiate with member countries, as the 30 million barrels of oil per day production cap will be challenged. 

In order to generate much-needed capital, Iran will want to increase oil production to pre-sanctions levels of 4.3 million barrels of oil per day from its current level of 2.8 million barrels, but OPEC is already producing at the cartels cap. With all member countries unlikely to cut back on production, Iran's increased production could likely oversupply the market, pushing crude prices lower. 

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This segment is from Tuesday's edition of "Digging for Value," in which sector analysts Joel South and Taylor Muckerman discuss energy and materials news with host Alison Southwick. The twice-weekly show can be viewed on Tuesdays and Thursdays. It can also be found on Twitter, along with our extended coverage of the energy and materials sectors @TMFEnergy.

Joel South has no position in any stocks mentioned. Taylor Muckerman has no position in any stocks mentioned. The Motley Fool recommends Total SA. (ADR). We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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