Oil investors now have to contend with another wildcard: Iran will soon return to the oil markets. After a three-year layoff, Iran could be ready to officially join oil exporters as early as 2021. But does it really predict a loss of oil prices? Not necessarily.
Oil prices reacted positively after OPEC and its non-OPEC partners reached a favorable agreement last week to begin a gradual reduction in production cuts starting in May. Starting next month, OPEC + will allow another 350,000 barrels per day to join the markets, with another 350,000 coming in June and June and 450,000 barrels per day scheduled for July.
Going to the edge of growth, it is clear that the alliance is trying to be extremely cautious to avoid disturbing a still delicate market balance, as the ongoing coronavirus crisis continues to disrupt market prospects.
Currently, the organization retains just over 7 million barrels per day, with OPEC Saudi Arabia voluntarily cutting another one million barrels per day.
Enter Iranian oil, which after all has already re-entered the oil export market in a sanctioning manner, mainly due to China.
Abbas Araghchi, Iran’s deputy foreign minister for political affairs, called for the removal of US sanctions imposed by Trump as the only condition before Iran accepts the reduction of nuclear activities under the 2015 nuclear deal, aka JCPOA.
The United States, in turn, seems willing to play ball after President Joe Biden expressed support for returning to something similar to the JCPOA. However, the Biden administration was adamant that Iran must first take steps to return to compliance – a parameter that Tehran rejected.
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However, many experts expect the two nations to reach a form of agreement, which could see oil sanctions lifted this year. In fact, the E3 + 2 members of the nuclear deal (UK, France, Germany, Russia and China) are now meeting in Vienna to discuss what will happen next, with the Biden administration also in Vienna, although there will be no face to face with the Iranians.
Prior to sanctions, Iran was one of the world’s leading oil exporters, capable of pumping more than 4 million barrels a day in its heyday.
While the spectrum of millions of barrels flooding the market could be unsettling for bulls – and quite capable of derailing OPEC’s reduction efforts – investors probably shouldn’t worry too much about it.
Iranian crude oil exports
Iranian oil: exports from 2008 to 2019
Source: CEIC
It is an open secret that Iran has violated US sanctions by applying several methods of cover-up to evade detection and sell its crude oil to China.
OPEC estimates that Iranian crude oil production was 2.14 million b / day in February, up 190,000 b / day from a 30-year low of 1.95 million b / day in August. However, it is far from 3.48 million b / d Iran pumped in 2016 and 3.79 million b / d in 2017.
But here’s why: Some sources of oil tanker tracking – which rely on satellite imagery to track global oil shipments – suggest that Iran’s oil exports are already quite high, which means we may not see an increase. huge even if the sanctions are high.
Iranian crude oil and condensate exports were estimated at 825,000 bp / day in Q1, a considerable improvement from 420,000 bp / day in Q3 2020, but well above the 2,125M b / day that the country exported 2017. You can bet that China is more than happy to take most of this crude, especially since Iran sells it to Chinese refineries with a sharp reduction in Brent crude.
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The relatively high level of exports amid these sanctions could mean that Iran is not desperate for a nuclear deal – and, in fact, could hope to prove that sanctions mean nothing.
Big wildcard
Let’s just say that right now, Iran remains a big wildcard, despite the lack of certainty that an agreement with the United States will materialize soon.
It is not a good idea for Iran to miss out on buyers for its crude if it decides to return to the market.
Bloomberg reported that Iran has already contacted at least five of its former Asian customers to reach agreements pending light sanctions. China and India have traditionally been Iran’s largest buyers in Asia, followed by South Korea and Japan. India, the world’s third-largest oil importer, will hope to diversify its crude oil sources and reduce its dependence on Iraq and Saudi Arabia.
But in the end, Covid-19 will continue to be the largest wildcard on the oil market. Neil Beveridge, senior oil and gas analyst at Bernstein Research, says demand could increase by 4 to 5 million barrels as we enter Q3 and Q4 if the launch of the Covid-19 vaccine progresses smoothly – a time when it may not matter much what Iran does or fails to do.
The United States has so far unveiled the fastest vaccine launch in the world under the name Bloomberg, placing it in the best position for a reopening economy. The latest vaccination rate is 3,053,566 doses per day, which means it will cover 75% of the population, or the so-called immunity number of the herd, in just three months.
By Alex Kimani for Oilprice.com
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