Report: Iran Deal Could Exacerbate an Already "Volatile and Oversupplied" Oil Market

Wednesday September 2, 2015

If finalised later this year, the nuclear deal between Iran and P5+1 world powers will result in a significant impact on international oil prices, with an increase in Iranian production flowing "onto a volatile and oversupplied market," Platts reports.

The deal could be ratified by December 15, and once free of the sanctions Iran has said it will double its 1 million barrels per day (bpd) of crude exports within six months.

The US Energy Information Administration (EIA) predicts that the first impact on the market will come from the release of floating stocks, which could boost total world supply by about 100,000 bpd by the end of 2015 (EIA pegs Iran's floating stocks at 30 million barrels, while Platts believes it is closer to 51-53 million barrels).

Some 60 percent of that floating stock is thought by the EIA to be crude, despite earlier assertions by Iran that it was mostly condensate and fuel oil.

EIA also believes Iran is capable of increasing crude production by about 600,000 bpd by the end of 2016 and stated that these additional volumes "are expected to put downward pressure on global oil prices in 2016, as Saudi Arabia and the rest of producers in [OPEC] are not expected to make production cuts to accommodate additional Iranian volumes in a well-supplied global oil market."

Meanwhile, Platts questions whether Iran's new Integrated Petroleum Contract, which will reportedly include longer-term involvement of contractors and adjusted interest rates, will be attractive enough "at a time when even the international majors are slashing spending."

There is also the ongoing fight for market share, something Platts notes is no longer simply a case of OPEC versus the non-OPEC nations.

"Within OPEC itself, there is an equally intense fight for market share under way ahead of Iran's full return to the market," says Platts, adding that Saudi Arabia has been pumping more than 10 million bpd since March.

In July, Amrita Sen, chief oil analyst at London-based consultancy Energy Aspects, said that given how oversupplied the market is with Saudi output at record highs, "the mere prospect of new oil will be bearish for sentiment."