"Big OPEC Winner" Iran Expects Oil to Remain in $50-$55 Range

Tuesday December 20, 2016

Iran, which avoided the output cuts other Organization of Petroleum Exporting Countries (OPEC) members agreed to undertake in order to encourage market rebalance, believes oil prices will remain in the $50-$55 per barrel range in the foreseeable future.

Bijan Zanganeh, oil minister for the Islamic republic, told reporters following a meeting with Alexander Novak, energy minister for Russia, that "There are already indications that the price of oil is rising in global markets; predicting the prices is difficult, but I am certain that the prices will remain between $50 and $55 per barrel."

Zanganeh added, "All signs show the prices will rise, and this is while none of the producers have reduced their production by even one single barrel."

As for the OPEC deal that resulted in members agreeing to cut production to a ceiling of 32.5 million barrels per day (bpd) and non-members promising to cut about 560,000 bpd in total, Zanganeh said, "The agreement showed that the Organization is still determined to struggle for a joint goal," and he added that the oil market has come to the same conclusion.

Even though Iran's growth as a producer in post-sanctions 2016 was stymied by the need for substantial funding to improve infrastructure and undertake a host of new projects, the country is widely viewed as the OPEC member that has benefitted the most this year, not only due to the lifting of the sanctions, but due to its refusal to cut back production.

Moreover, it seems the Islamic republic's struggle to attract much-needed investors will pay off in a major way in the New Year: in November, it scored a $4.8 billion gas development project with Total SA and China National Petroleum Corp, and it plans to bring companies such as Total, Royal Dutch Shell Plc, and Russia's Lukoil PJSC and Gazprom Neft PJSC back to its oil fields in 2017.

Also, Zanganeh and National Iranian Oil Co. are planning for the first oil development tenders to be made available to investors early in the New Year.

Jaafar Altaie, managing director of Manaar Group, says even though Iran has yet to sign any concrete deals to boost crude production, "There are positive signs with these recent deals; the big question is whether Iran can translate that into final contracts."

Carsten Fritsch, analyst at Commerzbank AG, adds, "Iran is definitely better off than they started the year, [but] further expansion plans for production have reached a plateau: they need foreign investment."

Still, Bloomberg points out that, "few countries have benefited from the oil market's 2016 recovery like Iran," noting that with it producing 3.67 million bpd in November and generating the equivalent of $172 million daily based on the average price for Brent crude of $46.98 per barrel, "Iran has risen to become the third-largest producer in OPEC."

Zanganeh's price predictions fall roughly in line with those of Goldman Sachs, which last week upped its price outlook for the second quarter of 2017 from $55 to $57.50 per barrel for West Texas Intermediate, and from $56.5 to $59 per barrel for Brent, based on their contention that OPEC cutback compliance will be strong.