In a new short term energy outlook the U.S. Energy Information Administration warned that lifting Iranian oil sanctions could drop crude prices by as much as $15 per barrel next year.
“Lifting sanctions could substantially change the [short term energy outlook] forecast for oil supply, demand, and prices by allowing a significantly increased volume of Iranian barrels to enter the market,” the EIA said Tuesday.
The agency said that if sanctions against Iran are lifted its baseline 2016 global crude oil price forecast could see a price cut of between $5 to $15 per barrel.
The EIA is currently forecasting North Sea Brent crude to average $59 per barrel in 2015 and $75 per barrel in 2016.
West Texas Intermediate crude is expected to average $52 per barrel in 2015 and $70 per barrel in 2016.
Iran reached a framework nuclear agreement with six world powers last week that would lift economic and oil sanctions in exchange for limits on nuclear enrichment.
Crude prices fell when the deal was announced on concerns that Iranian oil will flood already swollen global inventories and hold crude prices down.
Iran is thought to be holding at least 30 million barrels in storage, a large enough inventory to boost its crude exports even before the effects of production ramp up are felt.
The EIA said the oil rich country could ramp up crude production by at least 700,000 barrels per day by the end of 2016, a boost that would grow global inventories by 500,000 bpd that year.
An influx of Iranian crude could also stress storage capacity limits and push down crude prices.
Western sanctions have limited Iran’s crude exports to 1 million barrels per day since 2012 from a high of 2.5 million.
The country currently produces about 3.5 million barrels of crude per day, according to OPEC.
Just how much and how fast any new output will hit the market hinges on the final terms of the nuclear agreement although speculation about the deal is already moving prices.
“Although the timing and volume of Iran’s exports remain uncertain, the market perception surrounding increased future supplies will apply downward price pressure to near-term crude oil prices,” the EIA said.
Last week Iranian president Hassan Rouhani said his country will only agree to a deal if economic and oil sanctions are lifted immediately upon signing.
A final nuclear agreement is expected by June 30.