Concerns About Iran Supply Surge Recede

Concerns about a possible surge in Iranian oil supplies have faded recently, contributing to Brent crude futures breaking above $70 per barrel this past week. A fifth round of indirect talks between the US and Iran wrapped up without an agreement for Iran to accept curbs on its nuclear program in return for the lifting of US sanctions on its oil exports (IOD Jun.2'21). The possibility of a deal being struck before Iran's presidential election on Jun. 18 now looks much smaller than some people had expected when the talks started in early April (IOD May27'21). The market has also questioned Iran's ability to ramp up production rapidly, despite its stated intention to do so, including Oil Minister Bijan Zanganeh talking about pushing output to an all-time high of 6.5 million barrels per day (IOD Jun.1'21). Iranian oil production amounted to about 2.6 million b/d in May, according to Energy Intelligence data, but several years of constrained capital spending have taken their toll and would likely limit efforts to increase output. Iran Production Scenarios A recent report by Energy Intelligence's Research & Advisory service indicated that under a base-case scenario -- with a deal reached before the election -- Iran's crude production would reach 2.95 million b/d by August of this year. The base-case scenario also showed Iran's exports rising by 350,000 b/d by August and another 650,000 b/d by early 2022, from around 900,000 b/d now. But even under the report's "rapid increase" scenario Iran's production would top out at around 4 million b/d in April-December 2022. “My guess is that it has dawned on the market that any Iranian return to the export market will be spread over the next six to nine months and will not be immediate," said PVM analyst Tamas Varga. Global demand for oil is expected to increase in the second half of this year and into next year. But even if US sanctions were lifted, Iran would have to compete for sales with other Opec-plus producers who have plenty of unutilized production capacity of their own that they would like to put back to work. Opec Secretary-General Mohammed Barkindo said this past week that if sanctions are lifted, he would expect Iranian production to return to the market in an "orderly and transparent fashion, thereby maintaining the stability that we have." Moreover, if a hard-liner prevails in the upcoming presidential election, the odds of a deal that revives the multilateral 2015 Iran nuclear agreement and lifts US sanctions would become far less favorable. "I think the threat of imminent supply isn't that big an issue," Star Fuels senior broker Matt Stanley told Energy Intelligence. Julien Mathonniere, London