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Success of US anti-Iran sanctions to harm oil market balance

Oil&Gas Materials 18 September 2018 11:52

Baku, Azerbaijan, Sept.18

By Leman Zeynalova – Trend:

The more the US will be successful in reducing Iranian oil supplies to zero, the more it will be difficult to keep the world oil market in balance, Francis Perrin, Senior Fellow at the OCP Policy Center (Rabat, Morocco), Senior Research Fellow at the French Institute for International and Strategic Affairs (IRIS, Paris), told Trend.

He noted that between April-May this year and August Iran's crude oil production fell by about 200,000 barrels per day and its exports by about 500,000 b/d. “There is no doubt that this is the consequence of the future reestablishment of US sanctions. Several oil companies are anticipating this reestablishment, which will be effective at the beginning of November, by reducing their imports of Iranian crude and searching for alternatives.”

Between now and the beginning of November it is 100 percent certain that Iran's oil production and exports will go on falling, said Perrin.

“The big question is: by how much? As far as exports are concerned a new 500,000 b/d fall is probably a minimum and it could be more. We have to add two other elements to this equation: the fall of Venezuela's oil production, which could be as low as 1 million b/d at the end of this year (as against about 3 million b/d at the beginning of this century...), and huge political and security uncertainties in Libya, with a potential downwards impact on its crude production and exports,” noted the expert.

He went on to add that world oil demand is increasing: +1.4-1.5 million b/d in 2018 and a similar rise in 2019, according to the International Energy Agency.

“Where could additional oil volumes come from by the end of this year and by 2019? The number 1 answer is the US thanks to its unconventional oil resources. US oil production is on an upward trend since 2008 except for one year in this period. Its production will once more increase in 2018 and in 2019 as the potential is there and prices are rather high ($78/b for North Sea Brent). US oil production will probably rise by 1.7 million b/d in 2018 (as compared with 2017), which is huge,” he said.

“The number 2 answer is Saudi Arabia, which increased its crude production by about 500,000 b/d (as compared with the whole year 2017) and which will do more by mobilizing part of its unused production capacity.

“The number 3 answer is Canada, which could increase its production by a little less than 500,000 b/d between 2017 and 2019 (annual averages) thanks to oil sands in Alberta.

“Iraq has also increased its oil production and exports by a significant amount in the recent months and further increases are possible but it will depend on political issues,” noted Perrin.

The expert said that Russia is increasing its production and will go on in 2019. “Brazil will bring more oil on the market next year thanks to its deepwater capacities. The United Arab Emirates and Kuwait are also adding some volumes but it is not very important.”

To sum up, the expert noted that the world oil equation is delicate due to the fall in Iran and Venezuela oil production and exports and to a rising world demand.

“Over 2018-2019 more oil will come from the US, Saudi Arabia, Canada, Iraq, Russia and Brazil (two OPEC countries and four non-OPEC countries/two countries in the Middle East, three in the Americas and Russia). The oil market will be thus rather tight in the coming months. An oil shortage is possible but not sure. Many things will depend on the importance of the fall in Iranian oil production and exports between now and end 2018/beginning 2019.”

The Trump Administration intends to reduce to zero Iran's oil exports from the beginning of November, said the expert, adding that this will not happen. “But the more the US will be successful in this regard, the more it will be difficult to keep the world oil market in balance.”

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Follow the author on Twitter: @Lyaman_Zeyn

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