Oil prices hit their lowest since 2003 on Monday, as the market braced for a jump in Iranian exports after the lifting of sanctions against the country over the weekend.
The U.N. nuclear watchdog on Saturday said Tehran had met its commitments to curtail its nuclear programme, and the United States immediately revoked sanctions that had slashed Iran's oil exports by around 2 million barrels per day (bpd) since its pre-sanctions 2011 peak to little more than 1 million bpd.
On Sunday, Iran - a member of the Organization of the Petroleum Exporting Countries (OPEC) - said it was ready to increase its exports by 500,000 bpd.
"Iranian exports come at a very bad time," said Barclays analysts. A chronic global surplus of a million barrels or more of crude daily has pulled down oil prices by over 75 percent since mid-2014 and by over a quarter since the start of 2016.
Worries about Iran's return to an already glutted oil market drove down Brent to $27.67 a barrel early on Monday, its lowest since 2003. The benchmark was at $28.55 by 0523 GMT, still down over 1 percent from its settlement on Friday.
U.S. crude was down 38 cents at $29.04 a barrel, not far from a 2003-low of $28.36 hit earlier in the session.
However, traders and analysts described the plunge in prices as a kneejerk reaction, saying Iran's ambitions to export 500,000 bpd were not very realistic.
"If you track Iran's rhetoric over the past 12-18 months, officials were projecting a 1 million bpd rise in exports as soon as sanctions were lifted," said analyst Virendra Chauhan at Energy Aspects, adding that the most recent downgrade in the number is indicative of the challenges that face Iranian upstream and the markets capacity to absorb its supply.
Analysts expect Iran to take time to fully revive its export infrastructure that has suffered from years of underinvestment.
But the OPEC member does have at least a dozen Very Large Crude Carrier super-tankers filled and in place to sell into the market, and traders are betting that oil prices will drop some more.
Data shows that short positions in U.S. crude markets, which would profit from further price falls, have hit a fresh record high.
"Since the market is strongly one dimensional with net shorts at an all-time high", it could face further downside potential in the short term as "investors would be cautious of catching the falling knife", analyst Chauhan said.