Iranian oil: back to pre-sanction levels

Another oil report from Oxford Energy, this time looking at Iranian oil and noting:

  • Iran is broadly back to pre-sanction oil production levels.
  • There is the potential for expansion, but that is years away as none of the agreements with European oil companies have progressed very far.
  • There is LNG potential, but that is also a long way off.
  • There are lots of political issues, both at home (Rohani’s position is not that secure) and abroad (Trump threatening to change the sanctions deal).
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The implementation of the JCPOA in January 2016 has opened the door for Iran to return to international energy markets. President Rohani is trying to seize this opportunity. At home, a new petroleum law was introduced. In parallel, the government seeks to strike a balance in an attempt to secure the support of the more conservative elements of the Islamic Republic…

…International co-operation will help to maintain output at oil fields already in production. Many of Iran’s oil fields are mature and require enhanced recovery techniques. Furthermore, Iran is keen to ramp up production at shared oil and natural gas fields….

…While trying to expand domestic wealth creation (in other words economic growth) as well as reducing dependence on international markets and politics, Iran will especially encourage domestic consumption of natural gas. It is hoped that once domestic consumption is reined in, Iran can also be expected to attempt to achieve the completion of LNG export terminals…

…. The comeback of Iran to international energy, however, faces hurdles: political and economic uncertainty is looming… incoming US President Donald Trump is casting a shadow over Iran’s energy sector as part of a broader uncertainty regarding the future of Iran–US relations and the implementation of the JCPOA…

… In Iran, meanwhile, with upcoming presidential elections in May, it remains to be seen if Rohani is allowed to retain his office and to maintain his approach. Concluding contracts with IOCs, as proof of the JCPOA’s benefits, would certainly help to this end.

So, Iran was exempted from the most recent OPEC deal, but it probably doesn’t matter that much as they will probably struggle to add too much production over the next few years anyway.

To counterbalance that good news for oil, US shale production continues to expand, up 500k barrels per day. That means half of the OPEC production cuts have already been filled by the US alone (chart via Bloomberg):

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Damien Klassen is Chief Investment Officer at the MB Fund launching in April 2017. Register your interest now (if you haven’t already):

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Comments

  1. GunnamattaMEMBER

    Something to bear in mind with this is that there is an existing gas pipeline between Iran and Turkmenistan, and that Turkmenistan has become a very significant supplier of gas to China, utilising the Central Asia pipeline which plugs in through the back of Kazakhstan, so Iran can actually supply to the Chinese market without needing LNG trains. The Iranians, Turkmen and Chinese have had discussions on significantly expanding that (which was a factor in nailing the Russian price for its China mega contracts to the floor – China of course nails Turkmen gas prices to the floor using the prospect of increased Russian purchases and Turkmenistans lack of any other income earning capacity).

    • That’s all true, but ultimately the Stans should benefit from greater integration and dealings with the Chinese market, particularly if the Silk Road is even half of what is envisaged. Can’t do much about Geographic reality.

  2. Near record spec longs in oil futures again plus an OPEC accord that has as much substance Malcolm Turnbull …. tick, tock