BAKU, Azerbaijan, Oct.12
By Leman Zeynalova – Trend:
The impact on oil prices from a continuation of the status quo or a Biden win with a split Congress would likely be dictated by the directionality of the broad US dollar, Trend reports citing US JP Morgan Bank.
“Our FX colleagues project a 4.5 percent appreciation in the US dollar in the event of a Trump victory, which translates into an almost 10 percent decline for oil. A Biden presidency with a gridlocked Congress, on the other hand, would suggest a 2 percent depreciation in the US dollar, implying 5 percent upside for oil. Longer term impacts on oil prices under such scenarios would likely be dominated by structural supply-demand factors.
“The Trump administration’s most direct impact on the physical crude oil market was related to its 2018 withdrawal from the Joint Comprehensive Plan of Action (JCPOA), the Obama-era nuclear nonproliferation agreement between Iran, the five permanent members of the UN Security Council, and the European Union.
“The JCPOA agreement required Iran to cut or eliminate its stockpiles of enriched uranium, halt construction of new heavy-water reactor facilities, limit uranium enrichment, and allow IAEA inspectors access to all nuclear facilities. In exchange, the other countries that are parties to the JCPOA agreed to terminate or suspend nuclear-related sanctions on Iran. Within a year of the implementation of the agreement, Iran was able to increase its crude exports by nearly 1 mbd, from 1.4 mbd in 4Q15 to 2.3 mbd in 4Q16.
“Given the former VP’s role in the 2015 JCPOA agreement, under a Blue Sweep Biden administration, dealing with Iran would be an “early priority,” and the US “would be open to mutual reentry” into the JCPOA, so long as Iran is willing to comply with the terms of the agreement. In order to set the table for constructive dialogue, a Biden administration would likely seek an interim deal similar to the 2013 JPOA, before renegotiating JCPOA. This could involve some nuclear concessions in exchange for modest sanctions relief. This, combined with less rigorous enforcement, raises the possibility that some Iranian barrels will make it into the market by 2Q21 (Iran will hold its own presidential election in June 2021). Consensus estimates peg Iranian oil in floating storage at around 45 million barrels, which translates to about 500 kbd of exports over a quarter, on average.
“We believe, in spite of its recent escalation in both military and nuclear program activity, that Iran would readily reenter the deal. The lifting of US sanctions similar to what we saw in 2016 would almost certainly result in a similar increase in Iranian crude exports of 1 mbd to 1.2mbd in 2021 and another 1 mbdt o average 2.2 mbd in 2022. Although the risk of a Strait of Hormuz supply interruption would remain under any administration, sanctions relief would likely result in lower overall tension in the region,” the company said.
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