LONDON(Topmcxtips): Iran and the P5+1 extended the deadline for reaching a comprehensive agreement over Iran’s nuclear program for another seven months. For the oil market, sanctions on Iran’s 1 mb/d of crude oil sales lessen pressure on OPEC or other producers to cut, but the timing of any relaxation adds an additional wrinkle of oil market uncertainty, according to Barclays.
Had the agreement modified the Joint Plan of Action’s clause to “pause efforts to further reduce Iran’s crude oil sales” as part of sanctions relief, then it would have placed an even higher bar on other OPEC members to reduce output: something they already are not likely to do, Barclays said.
The prospect of Iran being able to increase oil sales as part of a new agreement in the next couple months would likely only further exacerbate OPEC oversupply to the market, as well as raise additional uncertainty on the timing of such oil sales increasing.
Iran’s output has declined over 1 mb/d since the most recent sanctions took hold via CISADA (2011) and the NDAA (2012). Though the details remain uncertain, it appears likely that Iran will not be able to significantly increase crude oil sales and will only be able to increase condensate supplies marginally (no more than 100 kb/d) in the next 6-8 months. Iran currently produces around 2.8 mb/d of crude. It is producing an additional 500 kb/d of condensate from South Pars, of which almost 200 kb/d is exported.
Those sales have averaged 100 kb/d higher in 2014 thus far than during the same time period in 2013, based on shipping data compiled by the IEA. Barclays assumes that the US administration will clarify in the coming days that they will continue to enforce sanctions on the imports of Iranian crude oil to the main importers including Turkey, China, India and South Korea, and we think it very unlikely that the US policy of “Iran’s crude oil sales cannot increase”, which is contained in the White House fact sheet from November 2013, will change. Changing this policy could draw the ire of Congress, which could threaten additional oil sales restrictions contained in the 2013 Kirk-Menendez bill