Iran opens the oil spigot

Oil pro­duc­tion and ex­ports are re­bound­ing faster than fore­seen “The in­crease was be­yond ex­pec­ta­tions”

Bloomberg Businessweek (Asia) - - NEWS - Ben Sharples, with Mark Shenk

At OPEC’s June 2 meet­ing in Vienna, del­e­gates voted not to re­strict crude pro­duc­tion, en­cour­aged by oil’s as­cent back to $50 a bar­rel—a rally sparked by dis­rup­tions in sup­plies from Nige­ria and Canada. When ques­tioned by reporters later, Bi­jan Nam­dar Zan­ganeh, Iran’s oil min­is­ter, said his fel­low OPEC mem­bers were not crit­i­cal of his na­tion’s plan to fur­ther boost out­put. The Per­sian Gulf na­tion, which was OPEC’s No. 2 pro­ducer be­fore in­ter­na­tional sanc­tions were tight­ened in

2012, has re­stored the flow of crude more quickly than the In­ter­na­tional Energy Agency had pre­dicted. Iran has in­creased out­put 22 per­cent since re­stric­tions were lifted in Jan­uary and is now pump­ing its pre-sanc­tion level of 3.5 mil­lion bar­rels a day, ac­cord­ing to es­ti­mates com­piled by Bloomberg.

The energy in­dus­try fig­ured that, given Iran’s ag­ing oil in­fra­struc­ture, it would take the coun­try “about a year or so to come back onto the mar­ket,” says Mark Keenan, who heads com­modi­ties re­search in Asia at So­ciété Générale. “The in­crease was be­yond ex­pec­ta­tions,” says Eu­gen Wein­berg, who fills the same role at Com­merzbank.

Since hit­ting a 12-year low on Jan. 20, the price of Brent crude, the global bench­mark, has jumped more than 80 per­cent. For a few weeks now it’s hov­ered around $50 a bar­rel as the fires en­gulf­ing Canada’s tar sands and at­tacks by mil­i­tants on oil in­stal­la­tions in Nige­ria have off­set the im­pact of Iran’s re­bound. How­ever, the pos­si­ble re­cov­ery of lost out­put else­where in the world risks putting re­newed down­ward pres­sure on prices. “We are close to the balance now,” says Wein­berg, re­fer­ring to global sup­ply and de­mand. “But it’s due to pre­sum­ably tem­po­rary dis­rup­tions.” Miswin Ma­hesh, an oil mar­ket an­a­lyst at Bar­clays, ex­pects slower global growth, along with any in­creased pro­duc­tion, to even­tu­ally drive prices lower again.

Iran is aim­ing to raise out­put to 4.8 mil­lion bar­rels a day within five years. Zan­ganeh wants OPEC, which is pump­ing at a record 33.2 mil­lion bar­rels a day, to re­turn to a sys­tem in which each mem­ber coun­try is as­signed a quota. Iran, he says, should ac­count for 14.5 per­cent of the group’s daily out­put—the level it held be­fore sanc­tions were en­acted. At present, its share is 10.5 per­cent.

The bot­tom line With Iran ramp­ing up crude out­put faster than ex­pected, oil’s re­cov­ery to $50 a bar­rel may not last.

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