Oil prices dipped slightly in early trading on Tuesday after posting strong gains the previous session on the back of an expected drop in U.S. production, but which analysts expect to be countered by rising output from Iran.
U.S. front-month West Texas Intermediate (WTI) crude futures , were trading at $33.10 per barrel at 0118 GMT, down 29 cents from their last settlement. International benchmark Brent was down 21 cents at $34.48 a barrel.
Tuesday’s dips came after strong gains in the previous session on the back of an expected fall in U.S. oil production this year.
Production of shale oil is expected to drop by 600,000 barrels per day (bpd) this year and a further 200,000 bpd in 2017, according to the International Energy Agency (IEA).
Yet analysts said that the gains were part-reversed by the prospect that rising Iranian production following the end of international sanctions, which will prolong oversupply. Currently 1-2 million of barrels of crude is produced every day in excess of demand.
“Crude supply growth from Iran will more than compensate for any decline in U.S. output,” ANZ said.
The IEA said that in the longer term, U.S. production would also recover thanks to improving cost efficiency, lifting output to a record 14.2 million bpd by 2021, compared with a peak of over 9.5 million bpd in 2015.
The expected resurgence of U.S. shale oil production will cap a recovery in the coming years in the price of oil, which is expected to reach $80 per barrel by 2020, IEA Director Fatih Birol said at a news conference in Houston, Texas.