BAKU, Azerbaijan, Feb.22
By Leman Zeynalova – Trend:
A larger factor determining a potential quicker return of supply is Iran, Trend reports with reference to the US JP Morgan Bank.
“There is the possibility that Iranian oil could return to the market in higher volumes should the new Biden administration rejoin the JCPOA and relax secondary sanctions on Iran. Over the last couple of years, sanctions have kept some 2.2 mbd of Iranian oil out of global markets. On the face, there seems to be good reasons for both sides to come to an agreement,” the Bank said.
On the Iranian side, the economy appears to be in a worse state than in 2015, according to JP Morgan.
“The country has been hit hard by the pandemic since the early stages, further weakening the economy and spurring inflation. The official annual inflation rate averaged 34.8 percent in 2020, reflective of supply constraints and a sharp depreciation of the rial. This compares with less than 10 percent in May 2018, when the US pulled out the JCPOA agreement. On the US side, the Biden administration has been vocal that the US should rejoin the JCPOA, including some sanctions relief, as long as Iran resumes compliance with the terms of the agreement,” reads the latest JP Morgan report.
If Iranian oil were to come back, it is likely Saudi Arabia would increase its own production rather than lose market share to its geopolitical competitor, the Bank believes.
“For now, however, it is clear that the new US administration is in no hurry to relax sanctions. We maintain a view that embeds a modest amount of sanctions relief in 2H21, after Iran holds presidential elections in June 2021, with 500 kbd of oil in Iranian floating storage making its way into the market. We believe the return of the full 2.2 mbd of Iranian production would take much longer,” reads the report.
OPEC+ agreed to lift oil production by 75,000 barrels per day over January levels.
But Saudi Arabia’s late announcement after the meeting sent oil prices soaring—that Saudi Arabia would voluntarily cut an additional 1 million barrels per day in February and March above its current quota—all while OPEC’s allies get to ramp up production.
The OPEC+ agreed not only for the production levels for February but for March as well. March’s production level will see an additional increase of 120,000 barrels per day over February levels, or 195,000 bpd over January levels.
With March’s production quotas already set, the February meeting, therefore, will set production quotas for April. The previous meeting held in December adjusted the total production cuts to 7.2 million bpd for January, from 7.7 million bpd before.
---
Follow the author on Twitter: @Lyaman_Zeyn