Iranian oil makes a comeback

Iranian oil has made a comeback following the landmark nuclear energy deal with world powers. Tehran and major powers, Britain, China, France, Germany, Russia and the United States, clinched a historic agreement in Vienna aimed at ensuring that Iran does not obtain a nuclear bomb, and which paves the way for the removal of sanctions and the gradual return of Iranian oil to the global market next year.

The accord puts strict limits on Iran’s nuclear activities for at least a decade. In return, sanctions that have slashed the oil exports of OPEC’s fifth-largest producer will be lifted and billions of dollars in frozen assets unblocked.

Iran’s exports could reach a potential 2.4 million barrels per day (bpd) in 2016, from 1.6 million bpd in 2014.

Iran can surprise oil market

Iran could restore oil production halted by sanctions faster than anyone anticipates if the history of previous shutdowns is any guide. Analysts believe that Iran needs at least a year after sanctions are lifted to raise output to the level prevailing before restrictions were imposed in 2012 but similar assessments for supply disruptions at OPEC members Libya and Venezuela were confounded by quicker-than-expected recoveries.

Even after equipment was damaged during the shutdown and the company fired thousands of workers, Venezuela was able to lift output by 2 million barrels a day in just four months. The recovery was “sharper than expected,” the Paris-based IEA said in April 2003.

The conflict after the civil war that ousted Muammar Qaddafi in 2011 all but halted production and the Libyan rebels themselves said it would take 18 months to increase output to about 1 million barrels a day. In reality, production surpassed that level in just six months.

Iran to upset OPEC

The Organization of the Petroleum Exporting Countries (OPEC) whose 12 members including Iran pump one third of global oil, is mindful that Iranian oil could worsen a global supply glut and depress oil prices further.

OPEC decided at its last meeting in Vienna in June to maintain output levels, extending its Saudi-backed strategy to preserve market share and fend off competition from booming US shale.

Poorer OPEC members Angola, Algeria and Venezuela, whose budgets are heavily reliant on oil revenues, may again argue for less output to support prices, analysts say. Richer Gulf producers, led by OPEC kingpin Saudi Arabia, remain eager for the cartel to preserve valuable market share and force out high-cost US shale producers with lower oil price levels.

In June, OPEC’s collective output ceiling was left at 30 million bpd, where it has stood for three and a half years, despite an oil price collapse between June 2014 and January that slashed precious revenues.

First Iranian ship sails for Asia

An Iranian supertanker with two million barrels of oil is heading to Asia after sitting in Iranian waters for months, the first vessel storing crude offshore to sail after a nuclear deal. The fully laden Starla, operated by Iran’s top tanker group NITC, had been used for floating storage since December 12, a tanker tracking source said.

It is unclear whether the estimated 2 million-barrel cargo had been sold, or if so whether the deal occurred after the agreement. But it is a milestone following a months-long build-up of idling crude tankers holding up to 50 million barrels of oil, equal to over a month’s worth of Iran’s exports.

Iran is “likely assuming that either a small increase in exports will not undermine the historic accord reached, or, that no one would notice,” analysts at Macquarie wrote in a research note. However, if an increase in exports is sustained it will “weigh on near term balances.”

Iran’s Oil Minister Bijan Zanganeh said last month the country was aiming to add 500,000 barrels per day (bpd) to production within two months of Western sanctions being eased, and as much as 1 million bpd in six to seven months.

Years of under investment mean Iran may struggle to get its oil industry anywhere near full potential, analysts say. It will also take time to raise output while nuclear inspectors verify Iran’s compliance with the terms of the deal, and sanctions are slowly removed.

South Africa keen to resume Iranian oil imports

South Africa is looking forward to resuming trade with Iran, including oil imports, once sanctions are lifted following a nuclear deal between Tehran and six majors powers, Maite Nkoana-Mashabane, the foreign minister said.

Iran was once the biggest oil supplier to South Africa, which is Africa’s second-biggest crude consumer, importing around 380,000 barrels per day (bpd) in total.

“Of course if sanctions are lifted that’s a win-win situation and South Africa will also benefit from that,” Nkoana-Mashabane said in response to a question about resuming oil imports from Iran.

Nkoana-Mashabane said South Africa had never agreed with sanctions against Iran and that its oil refiners had suffered from a ban on crude exports from the Middle Eastern country.

South Africa bought around 68,000 bpd from Iran in May 2012, a month before it halted crude purchases as Western countries pressured Tehran over its nuclear programme. That was well down from peak purchases in 2011.

European refiners welcome return of Iranian crude

Mediterranean refiners are gearing up to welcome the return of Iranian crude oil to the market which could push prices lower and boost profits.

Iran’s crude exports were a regular fixture for European refineries before Western sanctions were imposed on the key OPEC producer in 2012 over its nuclear programme, halving its exports to just over 1 million barrels per day.

European oil buyers, including Italy’s Eni and Saras have held talks with National Iranian Oil Company (NIOC) officials in Europe and Tehran over the past year in anticipation of sanctions being eased.

Asian buyers, notably China, India and Japan, have continued to buy limited volumes of Iranian crude in recent years. Royal Dutch Shell, whose officials recently held talks in Tehran on future cooperation and the repayment of the Anglo-Dutch company’s $2 billion debt said it was interested in doing business in Iran.

FRANK UZUEGBUNAM