Tuesday, August 25, 2015

Iran’s Oil Output Plans Put Focus on Opec Strategy
Anjli Raval, Oil and Gas Correspondent
Financial Times

Bijan Zanganeh, Iran’s oil minister, said on Tuesday the country would increase output by 500,000 barrels a day as soon as restrictions are removed, and a further 500,000 b/d in the months after.
“Iran will take back the market share of more than 1m barrels a day that it lost,” Mr Zanganeh said, according to state news agency Shana.

In July, Iran signed an agreement with six world powers to curb its nuclear programme in return for the lifting of sanctions on its economy. Philip Hammond, Britain’s foreign secretary, said this week he expected restrictions on Iran’s oil sales, which were imposed in 2012, to be removed as early as next spring.

The looming return of higher Iranian exports comes as oil prices have fallen to the lowest level since the financial crisis, with international benchmark ICE Brent hitting a six-year low of $42.23 a barrel on Monday.

That has heaped additional pressure on Saudi Arabia, the world’s largest exporter, which led Opec’s decision to eschew the group’s usual production cuts when prices started falling last summer.

Its policy was predicated on pushing more expensive producers out of the market and letting lower prices boost demand. But the slowdown in China’s economy, which roiled world markets at the start of this week, has led some to ask whether demand will be as strong as Riyadh hoped.

Despite the world’s biggest energy companies slashing billions of dollars in investment, supply has also been more resilient than expected. The increase in demand so far has not been enough to sop up the glut.

“If demand growth is revised down for the latter half of the year if these problems with China persist this could be problematic,” said Ehsan ul-Haq, oil analyst at KBC Energy Economics.

“More time is needed for a significant impact on overall production to achieve equilibrium. Such a balance is still not yet in sight,” he added.

Algeria, one of the weakest economies within Opec, has called for an emergency meeting of the 12 member countries to review the policy. Iran has lent support to the idea, but has nevertheless indicated it would sell its oil at any price.

“We should sell our oil whether the price falls or goes to $100 [a barrel],” Mr Zanganeh said. “Even though we would like to sell our oil more expensively, the price is determined by the market.”

Many analysts have more conservative estimates about how many additional Iranian barrels could come to market in the coming months, but they are still seen adding to a supply overhang averaging about 2m barrels a day.

Most analysts think Opec will not capitulate and cut production even as prices test new lows. Brent rebounded to $43.50 a barrel in afternoon trading on Tuesday.

Saudi Arabia and economically stronger members of the cartel are not “altruistic enough to cut their production purely to benefit the rest of Opec and non-Opec producers”, said Thomas Pugh, commodities economist at Capital Economics.

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