Exhausted by high fuel prices and the reluctance of OPEC+ to pump more oil, the US administration is seeking alternative solutions to increase oil stocks, which could lead to the lifting of sanctions on Iran’s oil exports and/or removing stock from its strategic reserves.
However, many experts say additional oil supply will not fix the high market volatility.
Iran and six other powers have been in talks since April to restore the 2015 nuclear deal, also known as the Joint Comprehensive Plan of Action (JCPOA) that was terminated three years ago by former US President Donald Trump. The Trump administration re-imposed sanctions on Iran that have severely hampered its economy by drastically reducing its oil exports.
Although a slew of sanctions aimed at Iran's energy industry was lifted on June 10, sanctions on the country’s oil exports are still in place.
Since the election of Iran's new hardline president Ebrahim Raisi in June, talks have halted. However, Ali Baqeri Kani, Iran's principal negotiator, announced earlier in November that his administration had agreed to meet in Vienna on Nov. 29.
“There’s skepticism as to whether the new Iranian negotiating team will deliver a better deal. However, there are reasons to believe that the new round of negotiations may arrive at a common ground for easing the current level of tensions between the US and Iran. One determining element that can forge a relatively smooth path between the two countries is ironically oil,” Fereydoun Barkeshli, chairman of the Vienna Energy Research Group (VERG), told Anadolu Agency.
Barkeshli said that bearing in mind that OPEC+ is currently holding a tight grip on the oil market, the group’s latest decision to adhere to previously agreed production policy can be seen as “a calculated and well-thought of market management.”
The group agreed to increase its production by only 400,000 barrels per day in December as per the deal made in July, rebuffing US President Joe Biden’s demands for more oil output.
The US administration has urged OPEC+ producers to bring more barrels to the market to cool off rallying energy prices, or else it said it would release crude from the country’s strategic reserves.
The US has the world's largest Strategic Petroleum Reserves (SPR) of more than 600 million barrels stored in huge underground salt caverns at four sites located on the Gulf of Mexico coast.
“President Biden made several public calls on the OPEC plus alliance to release more oil to the world oil market in order to cool prices. Mr. Biden hasn’t been quite successful on different fronts and high gasoline prices at the pump stations only add more to the problems. In fact, I had not seen such deliberate and massive pressure by a sitting US president on OPEC and Saudi Arabia, in particular, to produce more oil while he is addressing a major environmental conference, COP26 in Glasgow, and advising the audience to discontinue oil and fossil consumption,” Barkeshli said.
Speaking at a press conference at the United Nations Climate Change Conference (COP26) in Glasgow, Scotland, Biden had signaled out Russia and oil-producing nations for the rise in gasoline prices and said it “is a consequence of thus far the refusal of Russia or the OPEC nations to pump more oil.”
Barkeshli said that late President Ronald Reagan had also sent off his Vice President George Bush to Saudi Arabia to urge the Kingdom to produce less oil to help bolster prices.
Barkeshli noted the “interesting irony” in the current president seeking more oil and the former one requesting less output.
The Iranian oil expert said the current rise in prices is not due to a shortage of supply but argued contrarily that there is an abundant of supply and that any additional output would not solve the current oil and energy market's volatility.
”I haven’t seen any customer complain that he/she was turned away from a supplier because of no oil or because there’s a limit to quotas,” he said.
He contended that crude oil has always been the driving force for gas, and likewise international gas prices have always been oil-driven.
During the recent energy crisis due to gas shortages, Barkeshli said the equation has been reversed because of Russia's reluctance to pump more natural gas into pipelines for technical, commercial, or political reasons.
“As such more gas is required. Since there’s a gas shortage, there are concurrent electricity shortages too. The world is witnessing a major change in the oil and energy markets,” he said.
Although OPEC has the ability to supply more barrels to the market, Barkeshli believes the impact on prices would be negative.
OPEC spare capacity provides market reassurance. “In fact OPEC has been managing the market with a single tool, which is spare capacity,” he said.
However, he stressed that building and maintaining spare capacity costs huge amounts of money and only national oil companies, rather than international oil companies, can either afford or prefer to do so.
“Having said that, once OPEC and the alliance run out of excess capacity, the market remains panicked and sensitive towards any unwarranted jeopardy. In fact, OPEC has traditionally held about 10% of its capacity as spare. That’s why by adding more oil to the market, people get more nervous,” he said.
Venezuela and Iran together can pump some 4.5 to 5 million barrels per day (bpd) within two or three months, which Barkeshli described as “real barrels and not on paper and reliable sources of supply” which would relieve the market.
Barkeshli believes that there is willingness from Tehran, Washington and the EU to lift sanctions to prevent further escalation.
Although he said if sanctions are removed on a case by case and country by country basis, the global oil market will benefit but Iran will not be happy.
- US lifting of Iran sanctions may lead to limited oil price declines
Ian Simm, the principal advisor at consultancy IGM Energy, ruled out the Biden administration’s intention of potentially using the sanctions lift on Iran’s oil exports as a bargaining chip to balance crude markets “particularly when oil supply is forecast to return to surplus early next year.”
If the US returns to the 2015 nuclear deal and removes sanctions, Simm said Iran could significantly increase oil exports under a revamped JCPOA and these would not be hampered by the OPEC+ agreement given Iran’s exemption.
“Iran certainly has scope to increase exports with volumes having flowed into oil storage facilities since July and the [country’s] oil ministry expects an imminent increase in petroleum product exports. However, raising production from current levels is another matter,” he said.
Simm recalled that the Iranian state oil firm NIOC said that around $200 billion is required to maintain and increase oil and gas output levels, which he said would necessitate foreign assistance to increase production.
“Progress has certainly been made by local firms that took over projects earmarked for foreign firms before the US withdrew from the nuclear deal,” he said.
Simm predicted that oil prices would remain around $80 bpd for the remainder of the year, though “would likely drop by at least a few dollars in the unlikely event that the US makes a sudden return to the JCPOA.”
By Sibel Morrow