OPEC oil cut in favor of all, especially Iran

Business Materials 7 January 2015 08:00 (UTC +04:00)
Amid the international oil producers' competition to avoid losing their markets by keeping up the oil production level, some Iranian members of parliament have leapt to decline the country's oil export.
OPEC oil cut in favor of all, especially Iran

Baku, Azerbaijan, Jan. 6

By Dalga Khatinoglu Trend:

Amid the international oil producers' competition to avoid losing their markets by keeping up the oil production level, some Iranian members of parliament have leapt to decline the country's oil export.

Iran's Oil Ministry released a report on its official Facebook Jan.5, saying that some member of parliaments wants to cut oil export. The report says that some MPs argue that "Iran has had to offer discounts to sell its barrels and this is against the national interests".

Iran reportedly exported about one million barrel of crude oil and a little more than 400,000 barrels of condensate during the current fiscal year, started on March 21.

Before that, Iranian Parliament's Energy Commission member Mahdi Mousavinejad unveiled the mentioned plan on Jan.2 saying that plan is aimed to oblige the administration to cut crude oil exports by 25 percent in the next Iranian fiscal year.

Mousavinejad told Tasnim News Agency on Friday, an official announcement of a reduction in Iran's crude exports would affect the global oil price; also the plan would reduce the country's dependence on oil incomes.

Over the past six months, the oil prices have fallen about 50 percent due to surplus of global supplies and lackluster demand.

The co-director of the Institute for the Analysis of Global Security (IAGS) Anne Korin told Trend Jan.6, "if Iran and other OPEC countries reduce the amount of oil available for sale on the global market, that would serve to nudge the price back up so the net income from oil sales would go up".

OPEC's output ceiling

It is not clear whether other OPEC members would accompany Iran, or would immediately fill Iran's place in oil markets if the country reduces oil production, but Iran's Oil Minister said on Jan.4 during his speech in parliament that three-quarters of OPEC members are keen to reduce oil production.

"During the OEPC's meeting on November 27, 2014, only four country were against decreasing OPEC's production ceiling, including Saudi Arabia," he said.

Shana News Agency quoted Zanganeh on Jan.5 saying, "OPEC can influence the oil market only through the lever of supply".
According to OPEC's latest monthly report, published in December 2014, the cartel produced 30.053 million barrels per day (mb/d) in November, about 390,000 barrels per day less than the previous month. However, the demand for OEPC's oil was estimated to be 29.4 mb/d and 28.9 mb/d in 2014 and 2015 respectively.

Situation in Iran

Iran has set the current budget bill based on 1.3 mb/d of oil export, $100/barrel. According to a budget bill for next fiscal year, submitted by government to parliament, the export level remains unchanged, while the price considered at $72/barrel.

It's expected, Iran would face a huge deficit in next year regarding the proposed oil price in budget bill, while the current prices of oil in international markets are around $55/barrel and there is not any positive prospects for restoring the prices.

The share of oil export in governmental budget bill's revenues ($290 bln) is about 31.5 percent.

Fereydoun Barkeshli, the former general manager of National Iranian Oil Company (NIOC) in OPEC and International Affairs told Trend Jan.6 that Iran's oil export hardly exceeds a million barrels per day. "As such it is face-saving for Iran to indicate that its intention is to limit production and exports.

Barkeshli is currently a private energy consultant and president of Vienna Energy Research Group says that "on the other hand it has now become too costly for Iran to maintain and even upkeep production for which there is no global demand. The situation has virtually raised Iran production costs on barrel-wise basis. Going for gas injection or steam and water injection to maintain production at $30 per barrel to sell $40 per barrel is not considered viable for NIOC", he said.

Energy subsides

The other energy-related problem in Iran is depositing about $13 for each registered citizen's bank account monthly as a compensate for rising the fuel prices. There are 73 million people in Iran who was registered to get the cash subsidies.

Paul Stevens distinguished fellow at Chatham House told Trend Jan.6 that "Lower oil exports, especially in a world of falling oil prices will be very bad news for the Iranian budget and balance of payments. However, it may well also reinforce and encourage the economic reforms in Iran which have been taking place during last year and this would be a big positive".

Subsidized energy prices in Iran are very low, despite increasing the prices two times since 2009. For instance Zanganeh said on June 24 that currently over $90 billon worth of fuel is being consumed in Iran, while the government pays $80 billion of the mentioned figure as subsides.

Korin who is an adviser to the United States Energy Security Council believes that "another way to reduce the burden on national budgets, though politically difficult, is to reducing subsidies for oil products domestically so that consumers face a market driven price".

Energy prices in Iran:

Energy carrier

USD current exchange rate: 35,400 rials

Global prices (NYMEX-2014/2015)

Consumption Per day

A cm of gas

2.8 cent

11 to 16 cent

500 to 520 mcm

A liter of gasoline

28.6 cent

57 to 75 cent

67 million liter

A liter of LPG

6.26 cent

21 to 37 cent

5,500 tons

A liter of diesel

13.43 cent

67 to 78 cent

100 to 105 million liters

A liter of Kerosene

4.47 cent

48 to 64 cent

8 million liters

A cm of CNG

16.53 cent

27 cent

18 mcm

Electricity KWh

1.3 cent

16.37 cent

200 terawatt hours

However, Iranian government, as the energy prices in budget bill indicates, doesn't want to increase the energy carriers' price until March 2016.

The Iranian government has decreased the inflation rate from 32.5 percent in mid-2013 to about 17.2 percent during in last month and doesn't want the figure to re-rise due to re-increasing the energy prices.

Dalga Khatinoglu is an expert on Iran's energy sector, head of Trend Agency's Iran news service

Follow him on @dalgakhatinoglu

Edited by CN