Oil investors are now dealing with another wildcard: Iran will return to the oil markets soon. After a three-year layoff, Iran could be ready to officially rejoin the oil exporters by 2021. But does it really predict a downturn in the oil price? Not necessary.
Oil prices responded positively after OPEC and its non-OPEC partners reached a favorable agreement last week to gradually start cutting production cuts from May. Starting next month, OPEC + will allow an additional 350,000 barrels per day to enter the markets, with an additional 350,000 barrels per day scheduled for June and June and 450,000 barrels per day scheduled for July.
Judging by the margin of the gains, it is clear that the alliance is trying to exercise great caution to avoid disrupting a still fragile market equilibrium as the ongoing coronavirus crisis continues to cloud the market outlook.
The organization is currently holding back just over 7 million barrels per day, while OPEC kingpin Saudi Arabia is voluntarily cutting 1 million barrels per day.
Enter Iranian oil, which, in all likelihood, has already reentered the oil export market in a sanction-destroying fashion, mainly thanks to China.
Abbas Araghchi, Iran’s deputy secretary of state for political affairs, has cited the lifting of Trump-imposed US sanctions as the only condition before Iran can agree to scale back nuclear activities under the 2015 nuclear deal, also known as JCPOA.
The United States, in turn, appears ready to play after President Joe Biden expressed support for a return to something akin to JCPOA. However, the Biden administration has been adamant that Iran must first take steps to regain compliance – a parameter that Tehran has rejected.
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Nevertheless, many experts expect the two countries to reach an agreement that will allow the oil sanctions to be lifted in the current year. In fact, E3 + 2 members of the nuclear deal (the UK, France, Germany, Russia and China) are now gathering in Vienna to discuss what happens next, with the Biden government also in Vienna, though there will be no face to be. to face the Iranians.
Before the sanctions, Iran was one of the world’s largest crude oil exporters, capable of pumping more than 4 million barrels per day in its heyday.
While the specter of millions of barrels flooding the market could be troubling to the bulls – and very well able to derail OPEC’s efforts to curtail it – investors should probably not be overly concerned about it to make.
Iran’s crude oil exports
Crude Oil of Iran: Exports from 2008 to 2019
Source: CEIC
It is an open secret that Iran is ignoring US sanctions by employing various concealment methods to evade detection and sell its crude oil to China.
OPEC estimates that Iranian oil production was 2.14 million b / d in February, an increase of 190,000 barrels from the 30-year low of 1.95 million b / d in August. Yet that is still a long way from the 3.48 million v / d Iran that was pumped in 2016 and 3.79 million v / d in 2017.
But here’s the kicker: Some tanker tracker sources – which rely on satellite imagery to track global oil shipments – suggest Iran’s oil exports are already fairly high, meaning we may not see a massive increase even if the sanctions are lifted.
Iran’s crude oil and condensate exports were estimated at 825,000 b / d in Q1, a significant improvement from 420,000 b / d in Q3 2020, but far from the 2,125 M / d the country exported in 2017. You can bet China is more than happy to buy most of this crude, especially as Iran sells it to Chinese refineries at a sharp discount on Brent crude.
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The relatively high levels of exports amid those sanctions could mean that Iran isn’t desperate for a nuclear deal – and could, in fact, hope to prove that sanctions mean nothing.
Big wild card
Let’s just say Iran remains a big wild card at this point, despite the lack of certainty that a deal with the US will be coming soon.
It’s not that Iran won’t miss buyers for its crude oil if the decision to return to the market is a good idea.
Bloomberg has reported that Iran has already reached out to at least five of its long-time Asian clients to close deals pending relaxed sanctions. China and India have traditionally been Iran’s largest buyers in Asia, followed by South Korea and Japan. India, the third largest oil importer in the world, hopes to diversify its crude oil resources and reduce its dependence on Iraq and Saudi Arabia.
Ultimately, however, Covid-19 remains the oil market’s biggest wildcard. Neil Beveridge, senior oil and gas analyst at Bernstein Research, says demand could potentially increase by 4-5 million barrels if we get into 3Q and 4Q if the rollout of the Covid-19 vaccine goes smoothly – at which point it makes maybe not much of what Iran is doing or failing.
The United States has unveiled the fastest vaccine rollout in the world to date as Bloomberg, putting itself in the best position for a reopening economy. The latest vaccination rate is 3,053,566 doses per day, meaning it will cover 75% of the population, or the so-called herd immunity rate, in just three months.
By Alex Kimani for Oilprice.com
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