Return of Iran to boost global oil output by 1-2bpd; lower prices

Crude oil production by Opec+ in August surged to its highest since April 2020’s price war as analysts predicted that should the Iranian nuclear deal be revived, 1-2 million barrels per day of extra oil could hit the market in a comparatively short period of time, driving prices further down to $65 per barrel in the second half of 2023.

The August output data from Platts came as oil prices fell on Monday with the global fuel demand outlook overshadowed by Covid-19 restrictions in China and the potential for further interest rate hikes in the United States and Europe.

Brent futures dropped $1.01, or 1.1 per cent, to $91.83 a barrel by 0630GMT, after settling 4.1 per cent higher on Friday. US West Texas Intermediate crude was down $1.13 at $85.66 a barrel, or 1.3 per cent, after a 3.9 per cent gain in the previous session.

"The lingering presence of headwinds from China's renewed virus restrictions and further moderation in global economic activities could still draw some reservations over a more sustained upside," said Jun Rong Yeap, market strategist at IG.

“Opec could easily produce 30.5 million bpd (barrels per day) if Iran comes back and those barrels are not accommodated,” Tamas Varga, analyst at PVM Oil Associates in London, was quoted as saying by CNBC.

“Under this scenario my model shows Brent dipping to $65 per barrel in the second half of 2023, Varga said.

“Opec+ might be preparing for the eventual return of Iran,” Varga wrote in a report.

“Should the nuclear deal be revived, 1-2 million barrels per day of extra oil could hit the market in a comparatively short period of time.”

“An Iran deal would represent an additional 1.1, 1.2 million barrels per day in crude exports, production and exports. That would happen over the next eight months. So we would have a material difference on balances globally,” said Reid l’Anson, senior commodity analyst at commodities data firm Kpler.

The crude production hike in August came on the back of increased output from core Gulf members and recovery in Iraq production, according to the latest data released by Platts survey by S&P Global Commodity insights.

Opec’s 13 members pumped 29.56 million barrels per day in August, up 480,000bpd from July, the survey found. Supply from Russia and eight other non-Opec allies fell by 220,000bpd in the month, producing a collective 13.28 million bpd.

In all, Opec+ production totaled 42.84 million bpd, an increase of 260,000 bpd from July. That is the most since the alliance opened the taps to produce 47.56 million b/d in April 2020 during a brief price war in a dispute over pandemic strategy before historic cuts were subsequently agreed.

In August, the oil producers group underachieved yet again in delivering its promised production increase for the month and remained far below its declared output ceiling, as sharp losses in Kazakhstan and Nigeria tempered August’s gains.

Excluding exempt members Iran, Libya, and Venezuela, the 19 countries with quotas under the Opec+ agreement fell 3.61 million bpd short of their targets—the widest gap in the alliance’s nearly five-year history.

Except Russia, which pumped 9.77 million bpd in August, the rest of the members have increased production by just 440,000bpd since February, while quotas have risen by 2.96 million bpd, survey data shows.

Only Saudi Arabia and the UAE have any significant upside potential, according to many analysts, with the majority of Opec+ producers already at maximum volumes or are hamstrung by technical problems, a lack of investment, or internal unrest.

While Saudi Arabia boosted its output by 150,000 bpd in August to 10.92 million bpd—still below its quota of 11 million bpd, the UAE and Kuwait both added 400,000bpd each in the month, producing in line with their quotas, the survey found.

Saudi Arabia claims that it is capable of pumping 12.5 million bpd, if needed, although that is untested, and Platts Analytics estimates that sustainable capacity is closer to 11.5 million bpd. In September, its quota is set to rise to 11.03 million bpd.

— issacjohn@khaleejtimes.com