Iran and the United States are closing in on reviving the 2015 Joint Comprehensive Plan of Action (JCPOA), commonly termed as the Iran nuclear deal.
U.S. President Joe Biden is keen to strike a deal before the June presidential elections in Iran, which hardliners are projected by many to win.
All this has significant bearing on the crude oil markets.
The Organization of Petroleum Exporting Countries (OPEC) is keeping a close eye on the possibility of Iranian exports being released into the global crude oil market and its possible impact.
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Most know that it’s not going to happen tomorrow. At the earliest, it will take months. Iran would be able to return to pre-sanction oil production of about 3.9 million barrels per day (bpd) next year, analysts predict. The country pumped 2.3 million bpd in March, according to the latest S&P Global Platts survey of OPEC+ members.
But the timeline of Iran’s eventual return to the oil markets is being accelerated. S&P Global Platts expects a framework deal between the U.S. and Iran by the end of May, including a possible sanctions waiver allowing up to 500,000 bpd in sales, followed by full oil sanctions relief by the end of September, said Ash Singh, manager of supply and production analytics.
This timeline is accelerated from last month’s outlook, which forecast a deal in August and lifting of sanctions by year’s end.
S&P Global Platts predicts Iranian crude and condensate exports will reach 1.5 million bpd by January 2022, up from 825,000 bpd in quarter one of this year and 420,000 bpd in quarter three of 2020.
Rapidan Energy Group says its 80 per cent likely a deal will be reached by mid-to-late May, with implementation taking two to three months. It expects the bulk of Iranian oil supply to return late in the third quarter of 2021, reaching near capacity production of 3.5 million bpd by the end of the year, reports Meghan Gordon.
And in the meantime, things are beginning to happen.
Iran has already overtaken Kuwait in crude output, becoming OPEC’s fourth-largest producer. Fuelled by the jump in Iranian output, OPEC crude production went up by 70,000 bpd in April, touching a three-month high of 24.96 million bpd.
Argus reports that Iranian output went up by 80,000 bpd last month, reaching an overall output of 2.35 million bpd. This level of Iranian output hasn’t been seen since May 2019.
In view of a possible reconciliation with Iran, the Biden administration already seems to have slackened its tight grip on Iranian crude exports. According to Argus, Iran has added some 400,000 bpd in output since October 2020. And once the U.S. sanctions are lifted and JCPOA is revived, Iran could raise its oil exports to 2.5 million bpd, Iranian Vice-President Eshaq Jahangiri told Argus.
Iranian crude exports to China have been rising since January. The growing Chinese import of Iranian crude is increasingly being factored into the overall equation. Analysts estimate that Iran exports at least 650,000 bpd of crude, mostly to independent Chinese refineries.
The recently-signed, massive 25-year investment deal between China and Iran could lead to even higher Chinese imports from Iran, even if the sanctions remain in place. And if JCPOA is revived, that could even go higher.
The emerging scenario has reignited a market share battle within OPEC. Apparently in the anticipation of Iran’s full return to the global crude markets, Saudi Arabia last week announced it would reduce its prices for June shipments to Asia by between 10 and 30 cents per barrel. Until now, the Saudis have resisted any such decision.
The results are visible. Drawn by lower prices, Indian state refiners placed orders last week for enhanced supplies from Saudi Aramco for June, after reducing their purchases from Saudi Arabia this month.
The imminent return of Iran to the global crude oil market is beginning to cause ripples.
Toronto-based Rashid Husain Syed is a respected energy and political analyst. The Middle East is his area of focus. As well as writing for major local and global newspapers, Rashid is also a regular speaker at major international conferences. He has been asked to provide his perspective on global energy issues by both the Department of Energy in Washington and the International Energy Agency in Paris. For interview requests, click here.
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