Crude oil: The big news from the past week is the removal of international economic sanctions on Iran following the implementation of the July 2015 nuclear agreement. Iran’s oil ministry immediately ordered the ramp up of 500,000 barrels per day in production. It is unclear how quickly this will happen, although Iran says it can achieve the target almost immediately.
Iran has oil tankers loaded with 50 million barrels of crude ready to depart, although the FT reported that satellite imagery showed that none had departed as of January 18. Still, Iran’s assertive approach to returning to the oil market is straining relations between Iran and Saudi Arabia further, if that is possible.
OPEC members warned Iran would sink oil prices further. “Anyone who will introduce more supply in current situation will make it worse,” UAE energy minister Suhail bin Mohamed said. Iranian officials responded that prices will remain low until a “logical consensus to manage the oil market” emerges, a dig at Saudi Arabia’s current strategy.
Iran has every incentive to sell more oil, just like any other producer who is trying to make up for falling revenue by shipping more volume. But Iran also appears aware of the dangers.
“Iran is not interested in entering the market in a disorderly manner, which is self-defeating. However, it is also not interested to sacrifice further, to benefit those who gained from its absence,” a former Iranian oil official told the FT. “It is a delicate balance.” Oil prices sank below $29 per barrel on Monday following the news.
The IEA and OPEC each released their monthly oil market reports this week. Not much changed from OPEC’s perspective, as the cartel expects the markets to continue to rebalance later this year. The IEA took a more somber tone. The Paris-based energy agency said that oil demand slowed dramatically in the fourth quarter due to weak economic conditions in China, Brazil, Russia and other commodity exporters. Also, crude oil inventories could add another 285 million barrels to storage this year before drawing down, which will come on top of the notional 1 billion barrels in storage increases in 2015. IEA warned of the implications of rising storage: “While the pace of stock building eases in the second half of the year as supply from non-OPEC producers falls, unless something changes, the oil market could drown in over-supply |
