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Page added on June 12, 2015
China, Iran strike deal on oil
Oil and gas deals between China and Iran are set to change. Last week, several news agencies in the region, including the Iran Daily and Trend News Agency said that Iran and China have agreed that China would pay in cash for the oil and gas it buys from Iran.
China is currently the biggest buyer of Iranian crude oil, purchasing more than 440,000 barrels per day (b/d), but Tehran imports goods instead of receiving cash from these sales. The Iran Daily said that Iran can sell about one million b/d of oil under a preliminary nuclear agreement but the country has to use a maze of routes to receive its money. The two countries reached an agreement on payments partly in cash and the transfer of money to a third country to pay for imports.
“We wanted to transfer part of the export earnings to other countries, such as South Korea and Japan, to pay for imports or receive it in cash. Hence, consultations were made and an agreement was reached in this respect,” said Asadollah Asgaroladi, chairman of the Iran-China Chamber of Commerce. “Under the new agreement with Chinese authorities, it was decided that after a commission rebate, the balance of the oil and gas exports earnings is returned to Iran,” Asgaroladi said.
He added that there is no problem for payment of the oil earnings by the Chinese, without specifying the currency in which the two countries are trading. Crude oil is priced in US dollars, however, China has stated on several occasions that it would like to see the Chinese Yuan, as part of a basket of global currencies, used as the world’s reserve currency to offset a global financial system dominated by the dollar and Western governments. Iran, for its part, has also advocated using a different currency for oil payments, in efforts to distance itself from Washington’s influence.
This disclosure comes as Iran is in prolonged negotiations with the group known as P5+1 (the five permanent UN Security Council members, including the US, plus Germany) over Tehran’s nuclear program ambitions. In early April, the two sides reached a political agreement to eventually lift Western sanctions.
Almost immediately after the preliminary deal was reached Iranian officials traveled to Beijing to meet executives at Sinopec Group, one of China’s largest energy companies. At the time, Andy Lipow of Lipow Oil Associates told CNBC that Iran was laying the groundwork for increased oil sales to China once the sanctions were lifted. In light of recent talks between China and Iran, it appears that Lipow was correct. Iran is also negotiating with several other countries, including South Korea, over post-sanctions cooperation.
However, the April agreement was a preliminary deal. A June 30 deadline for reaching a permanent deal is approaching. In the meantime, the possible increase of Iranian crude oil to an already over supplied global oil market is keeping analysts and energy consultancies busy.
The US Energy Information Administration (EIA) said after the preliminary deal that reintroducing an estimated 700,000 b/d of Iranian oil to the market would counteract production cutbacks elsewhere. The EIA was mostly referring to cut backs at some US shale plays amid plunging oil prices, off around 40 percent in the past year, and slower global oil demand growth, including slower demand from China. If a comprehensive deal with Iran is reached, the EIA report said, 2016 crude oil prices might need to be revised lower by between $5 and $15 per barrel.
New Iranian oil entering the global oil markets would prove problematic for several OPEC members, especially as the cartel tries to stick to its November decision to maintain production levels to protect market share despite the downward pressure that strategy exerts on oil prices. However, for Iran, whose economy took a direct hit from Western sanctions over the past five years (especially its oil sector) and for China, who needs to diversify its oil supply, additional volumes of Iranian oil hitting the market would be welcome news.
20 Comments on "China, Iran strike deal on oil"
Plantagenet on Fri, 12th Jun 2015 11:39 am
Bringing more Iranian oil into the market will just make the oil glut worse.
Davy on Fri, 12th Jun 2015 12:02 pm
Planter, if I were a moderator on PO forum I would have a spam filter that would kick out any mention of a glut more than a couple of times. That would be a good thing for you because it would help correct poor commenting skills. I am not saying there is or isn’t a glut. What I am saying is you annoy most people here with your redundant glut meme. Yet, I am thinking you enjoy annoying people.
hiruitnguyse on Fri, 12th Jun 2015 12:55 pm
Always worth adding to your daily news links:
http://ricefarmer.blogspot.fr/
hiruitnguyse on Fri, 12th Jun 2015 12:56 pm
For the Climate Inclined:
http://www.desdemonadespair.net/
apneaman on Fri, 12th Jun 2015 5:36 pm
“If You Are Not Building a Nation, Then What the Fuck Are You Doing?”
http://www.nakedcapitalism.com/2015/06/if-you-are-not-building-a-nation-then-what-the-fuck-are-you-doing.html
Plantagenet on Fri, 12th Jun 2015 7:43 pm
Hi Daver
Its irrational to complain about the use of the word “glut” when discussing the current oil glut.
If you don’t understand the importance of using clear, direct language based on the proper words to accurately and concisely describe things, then please go back and read your Orwell.
The problem here isn’t use of the word “glut”—its that some posters here want to pretend that the world isn’t currently in an oil glut.
CHEERS!
Davy on Fri, 12th Jun 2015 8:25 pm
Planter you used it 4 times in the above post. You don’t think that was excessive. I have no problem with the word it is when I get water boarded with the word that makes me think you are trying to annoy people instead of making intelligent debate. Why not use over production, over supply, or excess supply on occasion?
Makati1 on Fri, 12th Jun 2015 10:01 pm
hiruitnguyse, I have that website bookmarked and read many of the articles posted there. A good view of reality from many sources.
hiruitnguyse on Fri, 12th Jun 2015 10:10 pm
Laugh article for those interested…
http://www.bp.com/en/global/corporate/press/press-releases/bp-energy-outlook-2035.html
Northwest Resident on Fri, 12th Jun 2015 11:16 pm
“you are trying to annoy people instead of making intelligent debate”
That’s the nice way of putting it.
GregT on Sat, 13th Jun 2015 12:15 am
NWR,
Davy’s trying the kinder gentler approach. Been there done that. It doesn’t work.
Plantagenet on Sat, 13th Jun 2015 12:29 am
Hi Daver
I do use the terms oversupply, excess supply and over production when they are appropriate, and I use the term “oil glut” when it is appropriate.
Again, words by themselves aren’t “annoying”. The people who are upset by the term “oil glut” (yourself excluded, of course) are people who either don’t have the wits to understand that the world is in an oil glut, or are in denial and can’t admit to themselves that the world is in an oil glut.
Cheers!
theedrich on Sat, 13th Jun 2015 1:31 am
Whatever the terminology used, Plantagenet is correct. The idiot POTUS and his lefty lawyers cannot understand that the Iranians are far too large and well-connected to strangle with sanctions. Given the current petroleum market, China is going to take advantage of the lowest bidder, which is Iran. Instead of clinging to the outmoded Rooseveltian policy of supporting KSA at all costs, no matter what they do abroad (like killing Yemeni civilians) or domestically, it would be more realistic to “pivot” to Persia and adjust to the resulting global market prices. For the last decade and a half, the weakening U.S. has been attempting to stop the tidal forces of history instead of working with them. Inventing American “interests” which require us to generate civil wars (Libya, Syria, even Ukraine) is only going to sink us deeper into the quicksand.
Northwest Resident on Sat, 13th Jun 2015 1:32 am
What I can’t figure out is why anybody would persist in making such an ass out of themselves as Plant does with every post. There is a very sick psychology in play here. A certain kind of mental illness. That, or Plant is just retarded, not sure which. Or maybe he gets paid to disrupt this forum and fill the comments with asinine absurdity. Whatever his motivation, Plant is truly one of a kind. To me, Plant personifies the corporate driven propaganda that we’re inundated with — blatant lies, false accusations, twisted truths, absurdity, stupidity — he brings all that and more. Plant fascinates me like a grotesque alien form of life would fascinate me. What makes this troll tick?
GregT on Sat, 13th Jun 2015 2:39 am
test
Davy on Sat, 13th Jun 2015 7:11 am
Thee, the so called planter oil “glut” is showing every sign of being a very small excess supply by historic standards. This current excess supply is showing every indication of occurring in slumping world growth especially now out of Asia. The developed world already has head low growth since especially since QE ended. This excess supply is showing every indication especially from a Hill’s group ETP approach of being mal-investment from a multi-year central bank quantitative easing and interest rate repression.
IOW we had a central bank induced shale oil sector bubble created from highish oil prices from tight supply from a period of feverish commodity inflation caused especially from a wild and crazy Chinese’s infrastructure mal-investment bubble. This Chinese infrastructure bubble was cause by the greatest ever credit creation in the shortest amount of time. This Chinese bubble was the greatest mal-investment in human history.
This highish oil price with the right technology and infrastructure allowed a yield seek with US and world investors in the shale resource sector of the US. This shale sector production is a significant contributor to the excess supply currently. This was a mal-investment because a normal non central bank repressed economy with normal price discovery would never have created this bubble and other commodity bubbles including financial market bubbles.
This so called planter glut is the excess supply from a global economy losing steam from deflating bubbles with central banks at limits of easing and rate repression. These bubbles require ever more easing and continued rate repression but these repression and easing policies are now up against limits and diminishing returns from the effects of those policies.
This planter glut is the result of an approach of the end game where industrial society descends from unsustainable levels of production and consumption to much lower levels. This glut is showing signs of our foundational commodity oil’s depletion effects best demonstrated by Hill’s group ETP analysis.
This descent is uncertain in severity, duration, and its beginning as a catastrophic economic and social bifurcation. We seem to be in the vicinity of a bumpy plateau/descent. We can only see the steady building of disequilibrium and dysfunction of a complex interconnected system hitting multiple limits with diminishing returns to complexity and energy intensity.
Planter’s glut is the best indication that the economy and that global system is sick. If the economy were healthy we would see an expansion by now considering all the global MSM and governmental statistical bodies reporting of adequate growth. We are not in a supply driven glut we are in a demand growth descent where much of the world’s oil is too expensive to drive growth.
The oil sector itself is contributing to excess supply by shutting down expensive production that requires copious oil imputes. This excess supply appears more and more to be a vicious cycle of demand and supply destruction not a happy planter glut of excess supply with soon to be frothy demand to mop it up. Planter is delusional and needs to open his eyes.
Plantagenet on Sat, 13th Jun 2015 10:33 am
Congrats to theedrich for his brilliant post.
Daver, you are right that the amount of overproduction in this oil glut is small. However, it is well known idea in economics that the price of a commodity is set “at the margins”, i.e. the price is set by the “last” barrel of oil.”
For instance, if there is an oil production shortfall, EVERY barrel of oil will be priced the same as the last barrel of oil that is bid up to the skies. Same thing with an oil glut—-EVERY barrel of oil sees its price drop because the “last barrel” of oil can’t find a buyer.
CHEERS!
Davy on Sat, 13th Jun 2015 11:21 am
Planter join the 21st century. Your E-Con brainwashing from the last century is not working like it used to especially when one considers multiple macro aggregate limits, macro diminishing returns to complexity, and ETP with our foundational commodity oil. IOW 20 century economic thought does not account for the end of growth and a demand plateau/descent environment.
Planter, you are still using 80’s thinking and that is why you look like a fool lately with your glut meme. The idea of a glut not stimulating growth does not phase your tunnel vision. Yet, you know something is not right though. This is why you redundantly say there is a glut and once the glut is over prices will go up. The supply and demand in the oil markets is not happening that way currently but you still believe because to not believe would leave your whole life system in tatters.
apneaman on Sat, 13th Jun 2015 12:15 pm
If there is anyone around in 100 years to write the history of the late 20th and early 21st centuries (small chance) they will not be blaming one American political party or politician. If they are astute they will identify the system, combined with ape nature, as the root problem. As far as politics goes the late 1970s early 1980s will be seen as a turning point. Regan and Thatcher were just the puppets, if it was not them they would have put some other useful idiots/true believers/careerists in office. From that point there is no real difference in any of them regardless of party – Reagan, Thatcher, Clinton, Bush, Obama, Harper, Merkel, Cameron, Abbott, etc, etc all serve the neoliberal model. Ultimately, the neo liberal model is just the most efficient way the rapacious apes could come up with to degrade energy. It’s an evolutionary thing. Where it matters is how said policy’s end up fucking you and yours over. Of course for most people, like plant, politics is an emotional/in-group issue (another evolutionary thing). Cheer for whoever you want – they own them all now and the system is a beast that cannot be reformed. It’s a cancer.
Makati1 on Sat, 13th Jun 2015 7:41 pm
Apneaman, I don’t even know all those who are running for the role of ‘puppet in charge’ this round. It doesn’t matter. It is only a bidding war between billionaires and all real (acceptable to TPTB) ‘candidates’ are selected and indoctrinated pre-‘election’. Those who are not, have zero chance of winning.
Voting is only to give the sheeple the feeling of having a say in their government. That ‘say’ disappeared decades ago. Now it is only one of many distractions to entertain the ‘citizens’ while the real powers continue to strip them of their future.
Your description, along with theedrich’s, is a very good view of reality in today’s ‘democratic’ US, and many other so called ‘democratic Western countries. There will be no real change until the pitchforks/guns come into the streets and the guillotines are set up on the Mall in DC. The US is anything but a democracy.