Energy market strategist: Iran capable of rapidly hitting markets with its oil

Azerbaijan, Baku, Oct. 23 / Trend, D. Khatinoglu, S. Isayev

Iran has a lot of oil in storage which could rapidly hit the market if they were so unwise as to dump it, former director of International Petroleum Exchange, energy market analyst Chris Cook told Trend.

Cook was commenting on a possibility of sanctions on Iran's oil export eliminated this month, and if it happens, how long would it take Iran to re-open its closed oil wells.

"The consensus appears to be that anything up to 1m barrels per day could be brought on-line within one to three months," Cook said.

Speaking about Iran reaching its 3.7 mbpd oil output level and above from 2010 after its wells are re-opened, Cook said that with adequate investment in modern drilling and production techniques there is no reason why production could not recover to 2010 levels or even go higher.

"Whether producing at those rates is in Iran's interests is another matter. Iran's oil minister Mr. Zanganeh understands the difference between capacity and production," Cook added.

According to the OPEC's annual report covering statistics for 2012, Iran's crude oil processing capacity is was about 1.681 mbpd. Iran's oil export was about 1.2 mbpd in 2012, while the figure decreased to about one mbpd in first three quarters of 2013. Iran has had to shut down some oil field's wells and decrease the oil production since mid 2012.

Alongside shutting down of wells, it is estimated that Iranian crude oil held in a floating storage in Persian Gulf is about 25-30 million barrels.

"If care is taken in shutting down production, then fields need not be damaged. In fact, pressure can even recover to give better production rates than before a shut-in," Cook said.

National Iranian Oil Company (NIOC) international affairs director Mohsen Ghamsari said on Oct. 22 that country could consider offering crude price discounts in the future to regain its former markets.

Ghamsari said that Iran doesn't have any obligation to give discounts for selling crude oil, added that Iran's oil price can easily compete with the neighboring oil producers.

Chris Cook believes that the global market is over-supplied and has been artificially supported by one or more producers with financial leverage from risk-averse 'inflation hedging' commodity investors who have recently been leaving the market in search of yield.

International Energy Agency (IEA) in its report said that growth in global oil demand this year was expected to remain largely unchanged from last year at around 895,000 barrels per day (bp), which was 30,000 bp less than in 2012.

In its Oil Market Report for August, the agency, however, trimmed its 2014 growth forecast for oil demand by 100,000 bp down to 1.1 million bp. The slowdown was the result of a revised figure for global economic growth next year, the IEA said, which the International Monetary Fund (IMF) had forecast to come in at 3.8 percent rather than an original 4 percent.

"The expected increase in production in the US and elsewhere requires sustained high prices, and if Iran does re-enter the market, and other production issues are resolved elsewhere (Nigeria, Libya, and others) then I think prices will fall (as forward prices imply) and the much-hyped US wave will not materialise. Boom and bust are hard-wired into the US energy market," Cook said.

According to OPEC's latest monthly report, the 12 members' oil outout totally decreased by 389,700 bpd, mostly due to decrees in Libya and Iraq's crude oil production.

Iraq's oil output felt by 370,300 bpd last month compared to previous month, while Libya's dropped from 1.39 mpb in 2012 to about 0.5 mbpd during last month.

The OPEC report based on secondary sources say Iran's oil output in September was 2.7 mpb, while this figure in 2011 - before the West's tough sanctions over the country's oil export- was 3.628 mbpd.

OPEC producer Iran has lost considerable market share as a result of international sanctions aimed at persuading Iran to stop its uranium enrichment work.

The sanctions, in particular those imposed separately by the United States and European Union in late June and early July last year, have slashed Iran's crude exports to around 1 million b/d from pre-sanctions levels of 2.2-2.3 million b/d.

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