What’s really going on in the oil market in the wake of the failed invasion of Ukraine by Russia that has jolted energy prices around the world? The pressure stretches around the globe when it comes to oil and the US petrodollar, with Iran now clearly in the crosshairs for a sweetened nuclear deal. From Oilprice.com:
Iranian crude oil and condensate production could bounce back very quickly after a new iteration of the nuclear deal has been signed and Iran’s Petroleum Ministry orders the National Iranian Oil Company (NIOC) to ramp up production. According to a senior analyst at global energy markets intelligence company Kpler, spoken to exclusively by Oilprice.com at the time, in this scenario Iran could see an 80 percent recovery of full production within six months and a 100 percent recovery within 12 months.
The pressure is also coming from the Chinese, as the beleaguered Russians see their European export futures dwindle and are surging supply to the Middle Kingdom.
Russian exports to China surged to a document in May, with the OPEC+ producer overtaking its cartel ally Saudi Arabia as the high provider to the world’s largest importer. While Iran has lower its oil costs to stay aggressive in the Chinese market, it’s nonetheless sustaining strong flows, seemingly in half due to rising demand as China eases strict virus restrictions that had crushed consumption.
“The only competition between Iranian and Russian barrels may end up being in China, which would work entirely to Beijing’s advantage,” stated Vandana Hari, founder of Vanda Insights in Singapore. “This is also likely to make the Gulf producers uneasy, seeing their prized markets taken over by heavily discounted crude.”
After a slight decline in April, Iranian imports have been over 700,000 barrels a day in May and June, in accordance to Kpler.
Iranian oil has been priced at almost $10 a barrel beneath Brent futures to put it on par with Urals cargoes which can be scheduled to arrive in China throughout August, in accordance to merchants. That compares with a reduction of about $4 to $5 prior to the invasion.
The geopolitical pressure also extends to West Africa:
West Africa has been one of the hardest hit, significantly provides from Angola, Gabon and the Democratic Republic of Congo, in accordance to Kpler. A blowout in a key pricing construction has contributed to the increased value of importing African crude, which has to be shipped over a for much longer distance to get to China.
“Costs are a big concern mainly for the teapots,” stated Michal Meidan, director of China Energy Programme at the Oxford Institute for Energy Studies. “This is likely to remain the trend until the economy starts to pick up and activity resumes, at which point demand for all crudes will increase.”
Until or if the Chinese economy picks up? We could be looking at much lower oil prices going into the second half of 2022 if Biden’s administration can push through the Iranian deal.
It pays to watch more than just the pump price amid the geopolitical picture on the other side of the world.