US analysts see sanctions-free Iran imposing risk on oil prices

US analysts see sanctions-free Iran imposing risk on oil prices

Baku, Azerbaijan, Jan. 19

By Aygun Badalova - Trend:

The removal of sanctions against Iran may pose further downside risks for oil prices, analysts of the US JP Morgan bank believe.

In a report, obtained by Trend, analysts said that the initial surge in Iranian exports will come from the sale of 48 million barrels of already produced crude and condensate reported to be sitting in floating storage in the Middle East Gulf.

"However, the bigger impact to the oil market in 2016 will be the scale, and speed, of the ramp up in production and exports," analysts said.

They retained the view that the increase in production will be muted, relative to official statements of an additional one million barrels per day.

Analysts forecasts that Iran's production will increase to 3.2 million barrels per day over the course of the first quarter of 2016, and stay at that level through the Q3 and Q4 of the year. This represents an increase of 300,000 barrels per day from recent levels and implies annual growth of 400,000 barrels per day year over year.

"Consequently, Iranian output gains will likely prove pivotal in determining whether the oil market can recover from the current downswing in prices that reflects the heavily oversupplied market conditions," analysts said.

Were Iran to deliver the 1 mbd cumulative increase claimed by government then 2H2016 balances would indicate continued builds and downside price risks to analysts' forecast of $40 a barrel by the end of the year, according to the report.

The international sanctions imposed on Iran with regard to its nuclear program have been removed as the Joint Comprehensive Plan of Action (JCPOA, aka nuclear deal) entered the implementation phase on Jan. 16.

Iranian officials have repeatedly announced that Tehran will increase its current oil export of one million barrels per day by 500,000 barrels as soon as sanctions are removed.

The figure is planed to increase by another 500,000 to two million barrels per day within a six month period at the next step.

Iran's current oil production is estimated to be around 2.8 million barrels per day (mbpd), of which about one million barrels are exported.

Iran's oil output was about 3.7 mbpd in 2011, but it decreased due to western sanctions, imposed in mid-2012.

During the sanction period, Iran gave up its market share to other countries and the country's customers were limited to China, India, Japan, South Korea and Turkey.

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