Oil investors now have to contend with another wild card: Iran will soon return to oil markets. After a three-year layoff, Iran could be on the verge of officially rejoining the ranks of oil exporters as early as 2021. But does it really predict the loss of the price of oil? Not necessarily.
Oil prices reacted positively after last week OPEC and its non-OPEC partners reached a favorable agreement to begin gradually curbing production cuts from May. Starting next month, OPEC + will allow an additional 350,000 barrels per day to enter the markets, with another 350,000 in June and June and 450,000 barrels per day scheduled for July.
Going by the margin of increases, it is obvious that the alliance is trying to be very careful to avoid upsetting a still delicate market balance, as the ongoing coronavirus crisis continues to cloud the market outlook.
Currently, the organization retains just over 7 million barrels a day, with the head of OPEC saying that Saudi Arabia voluntarily cuts an additional one million barrels a day.
Introduce Iranian oil, which by all accounts has already re-entered the oil export market in a punitive manner, thanks mainly to China.
Abbas Araghchi, Iran’s deputy foreign minister, has noted that the removal of US sanctions imposed by Trump is the only precondition for Iran to agree to reduce atomic activities under the nuclear deal. 2015, also known as JCPOA.
The United States, meanwhile, appears willing to play ball after President Joe Biden expressed support for his return to something similar to the JCPOA. However, the Biden administration has been adamant that Iran must first take steps to return to compliance, a parameter Tehran has rejected.
Related video: Saudi Arabia is engaged in hydrogen
However, many experts expect the two nations to reach some form of agreement, which could see oil-based sanctions lifted during the current year. In fact, members of the E3 + 2 nuclear deal (UK, France, Germany, Russia and China) are meeting in Vienna to discuss what will happen next, with the Biden administration also in Vienna, although there will be no face-face with the Iranians.
Prior to the sanctions, Iran was one of the world’s leading exporters of crude oil, capable of pumping more than 4 million barrels a day at its peak.
While the spectrum of millions of barrels flooding the market can be unsettling for oxen — and very capable of derailing OPEC’s downsizing efforts — investors probably shouldn’t worry too much.
Iran’s crude oil exports
Iran’s crude oil: exports from 2008 to 2019
Source: CEIC
It is an open secret that Iran has been rejecting U.S. sanctions by applying various cover-up methods to evade detection and sell its crude oil to China.
OPEC estimates that Iranian crude oil production in February reached $ 2.14 million b / d, an increase of 190,000 b / d from the 30-year low of $ 1.95 million in August . However, it is far from the 3.48 million b / d that Iran pumped in 2016 and 3.79 million b / d in 2017.
But here’s the engine: Some oil tanker tracking sources — which rely on satellite imagery to track global oil shipments — suggest that Iran’s oil exports are already quite high, meaning it’s we may not see a huge increase even if the sanctions are lifted.
Iran’s crude and condensate exports were estimated at 825,000 b / d in the first quarter, a considerable improvement from 420,000 b / d in the third quarter of 2020, but far from the 2,125M b / d that the country went export in 2017. You can bet that China is more than happy to take most of this crude, mostly because Iran sells it to Chinese refineries with a sharp discount on Brent crude.
Related video: Conditions are right for a second shale boom
The relatively high level of exports amid these sanctions could mean that Iran is not desperate for a nuclear deal and, in fact, could expect to prove that sanctions mean nothing.
Great bedside table
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’s not that Iran lacks buyers for its crude if it decides to return to the market is a good idea.
Bloomberg has reported that Iran has already contacted at least five of its former Asian customers to establish agreements in anticipation of reduced sanctions. China and India have traditionally been Iran’s main buyers in Asia, followed by South Korea and Japan. India, the world’s third-largest oil importer, is confident of diversifying its crude oil sources and reducing its dependence on Iraq and Saudi Arabia.
But eventually, Covid-19 will continue to be the biggest wildcard in 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 deployment of the Covid-19 vaccine progresses smoothly, in that moment may not matter much what Iran does. or it doesn’t.
The United States has so far introduced the world’s fastest vaccine launch as Bloomberg, positioning itself in the best position for an economic reopening. The latest vaccination rate is 3,053,566 doses a day, which means it will cover 75% of the population, or the so-called herd immunity number, in just three months.
By Alex Kimani for Oilprice.com
More highlights from Oilprice.com: