This morning I received a very good report on the deal with Iran from RBC Capital Markets.
If you'd like to read the full report, send me an e-mail: dmsteffens@comcast.net
Right now there is a lot of confusion about how much Iranian oil will come back to the market and when. Nothing I've seen so far has more Iranian oil coming to the market until 2016. Below is RBC's opinion.
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How Much Can Iran Bring Back? And When?
Western sanctions have plagued Iran since 2011 and current production levels of 2.9mb/d
are about 800kb/d to 1mb/d below pre-sanction levels. With a deal in the rear-view mirror,
the key question for the market is by how much and when can physical Iranian barrels return
to the market.
We are not buying into the suggestion that Iran can return production to pre-sanction levels
within months of sanctions reprieve. Our base case scenario is one in which we see 375kb/d
to 500kb/d returning about six to eight months following the successful completion of both
the Iranian and the US review and Congressional vote. This timeline puts physical barrels
back online in mid to late Q2’16.
A material volumetric increase beyond our base case scenario will prove to be a bigger
challenge given that further production gains will likely require additional investment. One of
the key reasons that we don’t see a quick return to pre-sanction production levels is
centered on the fact that a significant portion of domestic production comes from old
conventional fields with high decline rates. It has been noted that roughly half of Iran’s
production stems from fields that have been producing for more than 70 years. Old fields
simply don’t bounce back quickly after being choked back for several years.
One scenario in which we could see a fairly sizable tick up in exports sooner than our
timeline suggests is the case where Iran aggressively sells its floating storage into the market
once sanctions are lifted. This will make Iran appear authoritative but won’t be related to
Iran’s ability to further ramp up production on a sustainable basis.
As noted in our previous report (Iran Sanctions: Blurred Lines), a significant amount of
investment is required to revitalize Iran’s oil industry. Iran recognizes this and is taking steps
toward opening up the industry to be friendlier toward foreign direct investment. Western
companies have expressed interest but will likely be reluctant to fully re-engage until there is
substantial clarity regarding both US Congressional measures and the new contractual terms
laid out by Iran. Realistically, we believe it will take three to five years before we see Iran
production increase meaningfully beyond pre-sanction levels.
Iranian Oil: When and How Much?
Iranian Oil: When and How Much?
Dan Steffens
Energy Prospectus Group
Energy Prospectus Group
Re: Iranian Oil: When and How Much?
YOU SHOULD ALL TAKE THE TIME TO WATCH THE VIDEO AT THE LINK ABOVE. The headline is misleading. It is very bullish for oil prices bouncing back by year end. I have been telling everyone who will listen to me that the global oil market is going to be much tighter by year-end. This confirms my belief.
At the end he points out that 2/3's of the Iranian oil in storage is crap that no one wants.
At the end he points out that 2/3's of the Iranian oil in storage is crap that no one wants.
Dan Steffens
Energy Prospectus Group
Energy Prospectus Group
Re: Iranian Oil: When and How Much?
Terrific interview. Thanks for posting.