Iran’s return to oil markets is unlikely to cause a price drop

Oil investors now have to deal with another wild card: Iran will soon return to oil markets. After a three-year layoff, Iran could be ready to officially rejoin the ranks of oil exporters starting in 2021. But does it really herald the ruin of the oil price? Not necessarily.

Oil prices reacted positively after OPEC and its non-OPEC partners last week reached a favorable deal to gradually begin to curb production cuts starting in May. Starting next month, OPEC + will allow an additional 350,000 barrels per day to join the markets, with another 350,000 in June and June and 450,000 barrels per day scheduled for July.

Going on the sidelines of increases, it is obvious that the alliance is trying to exercise great caution to avoid upsetting a still delicate market balance, as the current coronavirus crisis continues to cloud the market outlook.

The organization is currently holding just over 7 million barrels a day, and OPEC leader Saudi Arabia is voluntarily cutting an additional 1 million barrels a day.

Enter Iranian oil, which by all accounts has already returned to the oil export market in a sanction-breaking way, mostly thanks to China.

Abbas Araghchi, Iran’s Deputy Foreign Minister for Political Affairs, has noted that the removal of US-imposed sanctions by Trump is the only precondition before Iran can agree to reduce atomic activities under the 2015 nuclear deal. , also known as JCPOA.

The United States, for its part, appears ready to play after President Joe Biden voiced support for a return to something like the JCPOA. However, the Biden government has insisted that Iran must first take steps to return to compliance, a parameter that Tehran has rejected.

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However, many experts hope that the two nations will reach some kind of agreement, which could lead to the lifting of oil sanctions in the current 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. – faced with the Iranians.

Before the sanctions, Iran was one of the world’s top oil exporters, capable of pumping more than 4 million barrels a day at its peak.

While the specter of millions of barrels flooding the market could be unsettling for bulls, and quite capable of derailing OPEC’s downsizing efforts, investors probably shouldn’t worry too much about it.

Iran crude exports

Crude oil from Iran: exports from 2008 to 2019

Source: CEIC

It is an open secret that Iran has been circumventing US sanctions by applying various cover-up methods to evade detection and selling its crude to China.

OPEC estimates that Iranian crude production in February was 2.14 million b / d, an increase of 190,000 b / d from a 30-year low of 1.95 million b / d in August. Still, that’s a far cry from the 3.48 million b / d that Iran pumped in 2016 and the 3.79 million b / d in 2017.

But here’s the kicker: Some tanker tracker sources, 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 a big increase even if sanctions are lifted.

Iran’s crude and condensate exports were estimated at 825,000 b / d in the first quarter, a considerable improvement over the 420,000 b / d in the third quarter of 2020, but a far cry from the 2,125 million barrels per day exported by the country in 2017. than happy to take most of this crude, especially since Iran sells it to Chinese refineries at a huge discount compared to Brent crude.

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The relatively high level of exports amid those sanctions could mean that Iran is not desperate for a nuclear deal and, in fact, could be waiting to show that the sanctions mean nothing.

Big wild card

Let’s say that at this point, Iran remains a huge wild card despite the uncertainty that a deal with the United States will materialize anytime soon.

Iran is not lacking in buyers for its crude if it decides that getting back on the market is a good idea.

Bloomberg has reported that Iran has already contacted at least five of its former Asian clients to close deals in anticipation of a relaxation of 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, hopes to diversify its crude sources and reduce its dependence on Iraq and Saudi Arabia.

But ultimately, Covid-19 will remain the biggest wild card in the oil market. Neil Beveridge, senior oil and gas analyst at Bernstein Research, says that demand could potentially increase 4 to 5 million barrels as we move into the third and fourth quarters if the launch of the Covid-19 vaccine progresses smoothly. , at which point it might not matter much what Iran does. or it doesn’t.

The United States has so far unveiled the world’s fastest vaccine launch like Bloomberg, putting itself in the best position for an economic reopening. The latest vaccination rate is 3,053,566 doses per 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

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