The sanctions, including oil export ban, must be lifted from Iran as soon as the agreement on regulation of nuclear issues is signed.
Meanwhile, the oil market did not react to this news by the noticeable change of oil market – embargo on Iranian oil trade is going to be lifted never today, nor tomorrow.
Meanwhile, Iran’s movement towards the lifelong goal has started. In expectation of lifting of sanctions Iran has accumulated over 70 million barrels of oil in several takers and underground storages (according to the estimates, of BP company’s economists). Development of the fields suspended during the embargo has not started and development of the new fields has not started either, but Iran will put the accumulated resources to the market.
One can evaluate impact of such an event on the main factor of the oil prices, such as correlation of demand and supply. This year the supply at the market exceeds the demand by about 1.5-1.8 million barrels a day. If Iran is going to sell a half or a million barrels a day, then pressure on the prices will be noticeable.
The pressure will be doubled, because judging by the Iranian officials, Iran is determined to restore its position as a supplier at the market, where it has successfully worked before the sanctions. For instance, previously Iran exported one third of its oil to Europe. Iran has lost big market niches at the growing and very perspective markets in Asia as a result of the sanctions. In order to win back the lost positions, Iran will deliver oil with significant discounts pressing average world prices for energy carriers even more.
The pressure could be mitigated by growth of costs for oil transportation, though it will not last long. The new oil volume is able to provoke the deficit of tanker capacities and as a result growth of cost of freight.
Another mitigating factor is that the market players have partially won back expectations of the Iranian oil in the current quote, though a nervous reaction to the events is not excluded: during some period the change of oil prices will be hard to predict and even chaotic.
However, under all above-mentioned circumstances the oil prices will inevitably go down. One can suppose that average price for oil will be about $45.00 per barrel in the short-term. One cannot exclude the oil price of $40.00 as well. In the mid-term the prices are expected to stay low. One should bear in mind that other oil producing countries, starting from Saudi Arabia rather increase, than reduce the deliveries. In addition to Iran, one should pay attention to increase in production in Iraq, new projects in Western and Eastern Africa and Brazil.
The growth of extraction continues against the background of unclear demand. Europe is currently in some sort of energy stagnation, but by 2025 North America will become a net oil exporter and China demonstrates slowing down of the pace of growth and by 2018 it could experience some serious economic problems. How is going to buy new oil volumes even at lower prices?
The oil price at $45.00 per barrel will not undermine the potential of extraction in the US, where successful development of technologies makes development of shale oil in the geological formations cheaper and simpler. But some countries, like Russia or Venezuela, will face serious problems. Their hard to extract oil resources could be called shale ones just conditionally. Their development is profitable with the oil price over $80.00 and sometimes simply commercially impossible with the current technologies. Oil companies in these countries will be forced to reduce the investment programs (they have already reduced or are reducing despite optimistic statements) and revise the plans of exploration and development drilling. Production will start going down in Russia ahead of the conservative scenario of the authors of the New Energy Strategy. Reduction of the export incomes will lead to new problems of the budget and jeopardize efforts of the authorities to stabilize the financial system. Iran’s return to the market does not promise anything good to Russia, says Mikhail Krutikhin, partner of RusEnergy Consulting Agency.
