Following the Iran nuclear deal announced on Tuesday, U.S. residents will likely see gas prices dropping to $2 a gallon in just a couple of months time.
“Once we get past Labor Day, we should see gas falling by 10 to 15 cents a month,” chief oil analyst Tom Kloza says. “By December a lot of places are going to see gasoline at $2 or less.”
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Iran hasn’t been able to sell oil to the United States since 1995. Most major Western countries imposed sanctions within the last five years aimed at curbing Iran’s nuclear program. Instead it’s been selling to China, India, Turkey and other developing markets.
Crude oil and gasoline prices were both initially lower Tuesday on news of a deal between six major powers and Iran, though oil edged higher later.
“[Iran] will only add to the oil glut on the market and increase the selling pressure,” wrote Naeem Aslam, chief market analyst at Ava Trade.
The details of how sanctions will be lifted is not yet known. Some critics in Congress want to keep U.S. sanctions in place, but President Obama has vowed to veto any such efforts. And even if U.S. sanctions do stay in place for a while, the flow of Iranian oil to Europe will push down prices in global oil markets.
Iran could add as much as 500,000 barrels of oil per day to worldwide markets by the end of this year, according to experts at a recent Credit Suisse conference on Iranian sanctions and oil. The International Energy Agency estimates Iran could add as much as 800,000 barrels a day months after sanctions are lifted. Another 30 million barrels of Iranian crude are estimated to be in storage and ready for sale, according to FACTS Global Energy, an industry consultancy.
The average gas price at U.S. stations is now $2.78 for a gallon of regular, according to AAA. Gas prices had fallen below $2 at most U.S. gas stations this past winter.
Even without Iranian oil, global production has been booming. North America, OPEC nations and record production from Russia and Iraq have been adding to a glut of oil on world markets. Economic problems in Europe and China also are curbing demand.
Kloza said Iran will add even more oil to the markets in 2016 as it improves its oil industry’s infrastructure, which has suffered under the sanctions.