Iran, West nuclear agreement could depress oil prices further

LONDON — As talks between Iran, the United States and its allies continue in the hopes of keeping the Islamic republic from being able to build a nuclear bomb, the one explosive item on the agenda is how fast Iran could resume oil exports and what that new supply would do to already low prices.

Iran’s oil sales are limited by sanctions imposed by the US and other nations to keep Tehran from building a nuclear bomb. A deal easing those sanctions could eventually result in at least half a million barrels of Iranian crude heading into a glutted global market, analysts estimate.

“The discussions have made people a bit more cautious on Brent,” said Mr Olivier Jakob at Petromatrix, a Swiss-based consultancy. “The fact that the US Secretary of Energy attended the last two meetings shows they are talking about oil and not nuclear power any more.”

Mr Jakob said Iran would not have to boost exports significantly for it to have an impact on the market. “If they open sales to Europe and bring 200,000 or 300,000 barrels into Europe, it will have a price impact. But it is a question of schedule and how quickly Iran gets the fields back on.”

With global crude prices already under pressure, any deal could quickly send them lower. US oil prices slumped to a six-year low on Monday on fresh signs that supplies are swamping the market. Crude oil for April delivery slid US$0.96, or 2.1 per cent, to US$43.88 a barrel on the New York Mercantile Exchange.

Barclays Capital analysts, who recently visited the Middle East, report that international energy companies based in the region believe Iran will strike a deal with the P5+1 group, which comprises the US, United Kingdom, France, China, Russia and Germany, coordinated by the European Union.

There is a “surprising amount of optimism that a deal will be struck with Iran, an enormous opportunity for IOCs (international oil companies) and service companies, but potentially quite bearish for oil markets as low-cost production could quickly ramp up”, Barclays analyst David Anderson wrote in a report.

While a deal is far from certain, Iran’s Oil Minister Bijan Zanganeh said on Monday the country could double its exports quickly.

“In case the international sanctions against Iran are lifted, one million barrels a day will be added to the country’s crude-oil production and exports in several months,” the minister was quoted as saying by the news agency Shana.

Iran has already sounded out Asian oil buyers about taking extra supplies, said two Iranian oil officials. “We have told our Asian customers we are ready to supply more when sanctions are lifted,” one oil official said.

“Iran is clearly the biggest wildcard to add low-cost supply as optimism over a deal swells,” Mr Anderson said after a visit to the UAE and Saudi Arabia.

The International Energy Agency (IEA) said Iranian crude oil production could increase by 600,000 to 800,000 barrels per day over the course of three months. Iran’s total estimated production capacity stands at around 3.6 million barrels per day.

“Iran is likely to aggressively prioritise recapturing lost market share, especially in Europe and Asia, which could see it release aggressively priced extra oil onto the market,” the IEA said.

In 2011, Iran was the third-largest exporter of crude oil in the world at 2.4 to 2.5 million barrels per day. Iran’s total number of customers also dropped from 20 at the end of 2011 to just six: China, India, Japan, South Korea, Taiwan, and Turkey. AGENCIES