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“Ready, Set, Ship” – Iran Has Been Stockpiling Oil Awaiting Nuclear Deal

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Iran has been adhering to a “ready, set, ship” policy with regard to its preparations to unleash oil exports on the global market when and if Western sanctions are eased or rescinded.

Bloomberg news agency has been compiling data which show that the OPEC country has been stockpiling oil both onshore and in supertankers in the Persian Gulf. Even though estimates by government officials and shipbrokers vary regarding the extent of the hoard- anywhere in the range of 7 million to 35 million barrels- Bloomberg cites Barclays and Societe Generale SA as forecasting that this oil would be first to be exported abroad if a deal is reached between the P5+1 and Iran.

The US and five other global powers (dubbed “P5+1”) are set to resume negotiations with Iran this week. A possible agreement would offer Iran relief from sanctions on crude exports, shipping and financial transactions if the country curtails its nuclear program and permits UN inspections to ensure compliance. As we have reported previously, if an agreement is reached, Iran could send its stockpiles into an already oversupplied global oil market that has sent the global oil price plummeting by more than 50% since last June.

But perspective is needed here as well. Iran’s production currently represents ~3% of global supply, standing now at around 2.8 M/bpd. William Edwards, President at Edwards Energy Consultants, commented on the implications of Iran adding potentially 0.8 million barrels of additional oil into the market:

“North America continues to put a million barrels a day of ‘excess’ oil into storage. Iran may add, abruptly, an additional 0.8 million barrels of additional oil into the system. If prices are struggling with the North American “excess”, what will prices do when the system tries to accommodate an added quantity of a similar magnitude?”

“The perspective that I visualize is similar to the panic that ensues when I see the commode overflowing!”

President Hassan Rouhani said earlier this month that oil revenues earmarked for the 2015-2016 budget would be $24 billion, down from $27.5 billion. This means that less than half of the government’s income would derive from oil exports. The previous projection had assumed oil prices remaining at approximately $72/barrel.

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Iran has been among the worst impacted oil exporting countries due to the fall in oil prices, given that its current budget was based on sales of $100/barrel. Iran currently exports around 1.3 M/bpd, down from 2.5 million prior to the imposition of US and EU sanctions in 2012. According to the oil ministry, since January Iran has been selling a barrel of oil at an average of $40.

US government officials told Bloomberg that it would take three to six months following an end-of-June deadline on a final deal for the Iranian oil to hit the global market. The talks this week center on reaching an agreement on a framework for the deal by the end of March.

For the last 2.5 years, Iran has stored excess oil on supertankers in the Persian Gulf, as more vigorous restrictions on its oil sales have deterred potential buyers, according to the IEA.

According to Bloomberg data, 13 National Iranian Tanker Corp-operated supertankers were anchored offshore Bandar Abbas, Assaluyeh or Kharg Island from March 15 to March 18. Bloomberg said the depth of their hulls in the water indicates that the supertankers are loaded with crude. The vessels, according to the data, have been at their current positions from three weeks to nine months. Each supertanker has the capacity to hold an average of 2.1 million barrels, according to the data.

The quantity of stockpiled oil may be less than half the amount suggested by the Bloomberg data, US officials who spoke to the news agency said. The officials said the country has in the range of 7 million to 17 million barrels onshore and offshore. They referred to estimates based on satellite surveillance and other evidence.

The exporting of stockpiled oil would occur more quickly than the revival of Iran’s oilfields. Bloomberg cited IEA data indicating that restoring the nation’s production by 800,000 bpd to its 3.6 M/bpd full capacity could be realized in three months following the cessation of sanctions.

enter image description hereIran’s major oilfields

More than 50% of Iran’s onshore oil reserves are contained in five giant oilfields. As of January 2013, Iran had an estimated 154 billion barrels of proven oil reserves, 9% of the world’s total reserves and over 12% of OPEC’s reserves. While most of these reserves are held in the Azadegan field, the largest producing field is the Ahwaz field, located onshore in the Khuzestan province of southwest Iran.

enter image description hereIran’s Oil Minister Bijan Zanganeh

Iran’s Oil Minister Bijan Zanganeh indicated on March 16 that Iran could increase oil exports by 1 M/bpd “within a few months” without Western sanctions.

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