Iran Update - Sept 10
Posted: Mon Sep 10, 2018 8:32 am
Note received from Marshall Atkins at Raymond James - September 10, 2018
With the reinstated U.S. secondary sanctions set to take effect shortly, Iranian oil production is already starting to decline well ahead of what we had been modeling. It is now clear that the consequence of U.S. secondary sanctions upon global commerce is much more relevant than just five years ago.
Many non-U.S. energy companies, fearful of being locked out of the U.S. financial system, are already acting to protect themselves by curtailing purchases and transportation of Iranian crude. In many cases they are reducing Iranian imports even though their domestic governments are opposed to this U.S. policy. The aggregate impact of all these individual business decisions is not totally certain yet, but it is now clear that the impact will be much greater than our initial 200,000 bpd Iranian supply reduction estimate. Accordingly, we are reducing our 2019 Iranian oil supply forecast by an additional 500,000 bpd for a total reduction of 700,000 bpd as compared to actual production during the first half of 2018. This equates to about a one-third reduction in Iranian crude exports. The loss of 700,000 bpd is a meaningful supply drop in the context of the global oil market, erasing a very important 0.7% of global supply in a market that is already undersupplied. While we are not raising our (already high) oil price forecasts on this clearly more bullish model, this revision clearly adds more potential upside to our current price estimates.
With the reinstated U.S. secondary sanctions set to take effect shortly, Iranian oil production is already starting to decline well ahead of what we had been modeling. It is now clear that the consequence of U.S. secondary sanctions upon global commerce is much more relevant than just five years ago.
Many non-U.S. energy companies, fearful of being locked out of the U.S. financial system, are already acting to protect themselves by curtailing purchases and transportation of Iranian crude. In many cases they are reducing Iranian imports even though their domestic governments are opposed to this U.S. policy. The aggregate impact of all these individual business decisions is not totally certain yet, but it is now clear that the impact will be much greater than our initial 200,000 bpd Iranian supply reduction estimate. Accordingly, we are reducing our 2019 Iranian oil supply forecast by an additional 500,000 bpd for a total reduction of 700,000 bpd as compared to actual production during the first half of 2018. This equates to about a one-third reduction in Iranian crude exports. The loss of 700,000 bpd is a meaningful supply drop in the context of the global oil market, erasing a very important 0.7% of global supply in a market that is already undersupplied. While we are not raising our (already high) oil price forecasts on this clearly more bullish model, this revision clearly adds more potential upside to our current price estimates.