Rip it up and start again

Author Ben Winkley

There was a glaring omission in Opec’s July Monthly Oil Market Report this week. In the 12 pages devoted to world oil supply and the additional five pages looking forward for the first time to 2016, there was not one mention of how the group’s forecasts would be affected by the potential return of Iranian crude.

There was a glaring omission in Opec’s July Monthly Oil Market Report this week. In the 12 pages devoted to world oil supply and the additional five pages looking forward for the first time to 2016, there was not one mention of how the group’s forecasts would be affected by the potential return of Iranian crude.

Perhaps it was not deemed politic to do so. The only hint that something might happen was contained in the usual Opec disclaimer about risks to its forecasts: alongside civil wars, technical developments and regulations sat a brief mention of “geopolitics and related sanctions”.

Today saw geopolitics writ large in Vienna. After years of painstaking diplomatic give and take, a deal has been struck over Iran’s nuclear programme — and it clearly spells out the timetable that will enable the return of Iranian crude to global markets.

US and EU sanctions targeting Iran's oil and gas sector will be rolled back when UN nuclear watchdog the IAEA confirms that it and Tehran have resolved all past and present outstanding issues regarding Iran's nuclear programme. Going by today’s statement from the IAEA, this will happen on 15 December.

What does this do to the first forecasts for 2016? Opec is quite optimistic about how things will pan out next year, suggesting an acceleration in demand growth. The IEA is more circumspect, seeing a slowing rate of demand growth. In fact, the IEA, in a very bearish report, went one step further, saying demand would be "significantly below most of the existing projections for oil supplies".

These existing projections will have to be retooled.

Early thoughts on how much extra crude Iran could export on the lifting of sanctions range from 300,000-500,000 b/d, with the higher figure provided by Iran’s oil minister Bijan Namdar Zanganeh. He said the same amount again could be added within six to seven months. An extra 1mn b/d would make the IEA’s bears look like cubs, and would stick a pin in Opec’s optimism.

But as historic as today seems, it is not the end for this saga. Hardliners will have their say in Washington and Tehran, and new contracts have to be drawn up to attract the necessary investment from foreign companies. Perhaps it is the beginning of the end.

For more information, please contact OilBlog@argusmedia.com

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