Iran opens the oil spigot
Oil production and exports are rebounding faster than foreseen “The increase was beyond expectations”
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.