Doubts over Iran’s ability to resume oil export quickly

Business Materials 17 June 2015 08:00 (UTC +04:00)

Baku, Azerbaijan, June 17

By Umid Niayesh - Trend:

Despite Iranian officials' statement about raising oil export immediately, some experts believe the process of putting significant further Iranian oil on the markets would take time.

Iran's Oil Minister Bijan Namdar Zanganeh has already said that the country can pump more, 0.5 mb/d of oil to markets a month after lifting the sanctions and this volume can reach 1 mb/d in six months.

Iran and P5+1 are negotiating to reach a comprehensive nuclear deal to pave the ways for elimination of sanctions imposed on Iran.

Reuters published a report on June 15, quoting several sources as saying that Iran has stored 38 million to 45 million barrels of oil at sea to be exported as soon as the sanctions on Iran are eliminated.

Guy Caruso the former administrator of the U.S. Energy Information Administration (EIA) who serves currently as a senior adviser in the Energy and National Security Program at CSIS told Trend on June 16 that "I have heard similar estimates of 30-40 million barrels of Iranian oil in floating. That would seem plausible".

"I have also heard that a large share of the oil in storage is in the form of condensates containing impurities which will make it difficult to market without processing. I think the pace of placing Iranian oil on the market may be slower than what Iranian officials announced. After sanctions lifting, I would guess 3-6 months to add 500,000 b/d and 12-18 months to reach 1 million b/d assuming the fields were well maintained and pressure tested," he said.

Before the western sanctions on Iran, the country was exporting 2.5 mb/d of oil, but the figure has fallen to 1.2 mb/d in 2014 and 1.4 mb/d in recent months.

Gal Luft is co-director of the Institute for the Analysis of Global Security (IAGS), a Washington based think tank told Trend on June 16 that "the oil market is well supplied and a large inventory overhang exists especially in the U.S. therefore 0.5 to 1 million barrels per days of new Iranian supplies could keep downward pressure on Brent prices in 2016".

Coming to the possibility of decreasing oil prices after raising Iranian oil export, Luft said, "My guess is about $5/barrel less than what otherwise would have been the price."
Luft who is a senior adviser to the United States Energy Security Council believes, "Iran may have the oil ready for export but that doesn't mean buyers will jump on it. I believe the volume in the first month will be 0.1 mb/d going up to 0.5 mb/d after six months. The impact on price will therefore be moderate. No more than $5 a barrel."

However, Anne Korin the co-director of the Institute for the Analysis of Global Security also told Trend on June 16 that assuming a rise in Iranian exports would likely drop oil prices quite substantially.

She believes that a sharp rise in Iranian oil export by 0.5 mb/d in a month or 1 mb/d in six months are feasible.

Sam Barden, the director of Wimpole International, an energy market development company believes that the decision to raise Iranian oil export by 0.5 million barrels per day (mb/d) will certainly push prices down because traders (financial through Brent complex) perception will go from having long positions in oil to short positions and that will mean price capitulation.

"Buyers become sellers and the price will overshoot to the downside. I think we will definitely see oil prices as low as USD $25 and I see that as happening quickly."

Edited by CN