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Iran nuclear deal to see $20 oil if Tehran floods crude market

Iran nuclear deal to see $20 oil if Tehran floods crude market thumbnail

Flights to Tehran from Dubai have been crammed in recent months with Western executives flooding into the Iranian capital ahead of a potential lifting of economic sanctions.

Potentially one of the Middle East’s biggest economies, Iran has been frozen out by the West over its refusal to give up its aspirations to become a nuclear power. But a binding deal that would bring the Islamic state in from the cold appears tantalisingly close as negotiators thrash out terms in talks being held in Lausanne, Switzerland, over the weekend.

In terms of commodities, the biggest impact that a resumption of normal economic relations with Iran will open up is in the oil industry. Tehran is a sleeping oil giant, which has been frozen out of international markets and denied access to key technology and investment that could lead to a massive surge in its potential to produce oil and gas. The country holds 9pc of the world’s proven oil reserves and a nuclear deal that could open up its fields to foreign investment is potentially game changing for the industry.

With oil prices continuing to come under pressure from an estimated 2m barrels per day of excess supply sloshing around international markets, any significant increase in Iranian output could easily trigger a further rout in prices. The price of a barrel of crude has fallen 50pc since last June to trade around $50 per barrel but and agreement in Lausanne to restore Iran back into the international community could easily trigger a further sell down towards levels around $20 per barrel.

Ahead of the Lausanne talks, Iran’s oil minister Bijan Namdar Zangeneh said that the country could easily increase production by 1m barrels per day (bpd) within months of sanctions being lifted. Under the current terms of the economic sanctions designed to bring Tehran to the table the country’s oil exports are restricted.

“In case the international sanctions against Iran are lifted, 1m barrels a day will be added to the country’s crude-oil production and exports in several months,” Mr Zanganeh has said in recent weeks.

Output is currently around 2.7m bpd of which 1m bpd is exported. The figure is a long way from its production levels prior to sanctions. According to BP, the country was capable of pumping over 4m bpd in 2011. Despite its significant reserves of oil and gas some analysts question the country’s ability to increase output significantly over such a short period of time.

Charles Robertson, chief economist at Renaissance Capital has said: “After years of low investment, we doubt Iran can suddenly flood world markets with oil: the last time it produced more than the 2011 peak of 4.4m bpd was in 1978.”

However, the country may not have to increase output in order to immediately boost exports following a deal. Some estimates suggest that the company has between 7m and 35m barrels of crude in storage that could be immediately placed for sale on the international market were a deal to be achieved before the rapidly approaching April 1 deadline.

Long term a return of international oil majors to Iran will be required to significantly boost output for a sustainable period of time. Oil majors such as Royal Dutch Shell and Total have previously been active in the country and would undoubtedly return quickly if sanctions were lifted and acceptable oil development contracts could be negotiated.

One significant barrier to a major increase in Iran’s oil output could be its membership of the Organisation of Petroleum Exporting Countries (Opec). The 12-member cartel, which controls a third of the world’s oil supply, maintains a quota system that Tehran would have to negotiate. It’s unlikely that Saudi Arabia would be willing to support any increase in Iranian exports, which sets up a tense meeting of the group’s ministers when it next meets in Vienna in June. By then a barrel of oil may already be selling for $20.

Telegraph UK

4 Comments on "Iran nuclear deal to see $20 oil if Tehran floods crude market"

  1. mudassar ghani on Mon, 30th Mar 2015 7:52 am 

    inform me plZ crude oil…and male thanks

  2. Davy on Mon, 30th Mar 2015 8:03 am 

    The dynamics of POD are far more complicated than a MSM site called the Telegraph UK can comprehend so no use reading this. Modern day MSM people are an example of the low grade of graduates coming out of Universities across the globe. Not only are these folks bought off by corrupt editors they are just plain dumb to reality. That my friends is a recipe for a sheeple population being misled. These sheeples are going to be pissed one way or another one of these day so I guess it does not matter what these idiots say.

  3. shortonoil on Mon, 30th Mar 2015 9:17 am 

    Iran’s fields are old, and tired. They have experienced minimal maintenance for 30 years. Much of its oil is heavy, and sour; not exactly what the world is looking for. By the time the $10’s of billions needed to upgrade their fields has been invested, US shale will have long been in serious decline. Oil will reach $20, but not because of Iran:

    Depletion is ensuring that petroleum’s capacity to power the economy is declining, as it does demand declines, and the price. The highest cost producers will be phased out first; shale, bitumen, ultra deep water, and high sulfur extra heavy will be the first to go. The world is approaching the end of the oil age, and as it does more, and more reasons will be announced to explain oil’s declining price. An ever increasing list of escape goats will be found to place the blame upon.

    The world is displaying symptoms that have never been seen before. Its economies are not responding to an increased supply of petroleum; they continue to whither as millions of barrels sit idle in storage. As depletion continues its relentless march forward, petroleum’s ability to rejuvenate those economies will only continue to decline. It is a natural process that can only be expected. Blaming Iran, Saudi Arabia, or North Dakota is a fool’s errand. Blame Mother Nature, she put too little of her miraculous substance in the ground for us to use. Then again, maybe it is just that we have not used what was given to us wisely. Of course, that can never be admitted!

  4. Plantagenet on Mon, 30th Mar 2015 11:09 am 

    Its all pretty simple.

    Frack some shale.
    Produce some oil.
    Create an oil glut.
    Watch oil prices collapse.
    Add more oil from Iran.
    Watch oil prices collapse further.


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