Oil prices closed the week mixed on Friday, as US crude ended eight weeks of gains as the prospect of increased Iranian oil exports outweighed fears of a possible supply disruption from the Russia-Ukraine crisis.
Brent crude futures rose 57 cents, or 0.6 percent, to $93.54 a barrel, while US West Texas Intermediate crude closed down 69 cents, or 0.5 percent, at $91.07 a barrel.
Both benchmarks reached their highest levels since September 2014 on Monday, but the prospect of easing oil sanctions on Iran weighed on the market. Brent crude rose slightly by 0.9 percent for the ninth consecutive week of gains, while WTI fell by 1.7 percent this week.
Fears of possible supply disruptions as a result of the Russian military build-up on the Ukrainian border limited losses this week.
The West has threatened to impose new sanctions on Russia, a major oil and gas producer, if it invades Ukraine. Moscow denies its intention to take such a step.
Italian Prime Minister Mario Draghi said any EU sanctions on Russia should not include energy imports.
A senior European Union official said today that a deal between the United States and Iran to revive the 2015 Iran nuclear deal with world powers is imminent, but that success depends on the political will of the participants.
Annexation of Iran
Sources close to OPEC + said that the group will work to include Iran in the agreement to limit oil supplies if a settlement is reached to revive its nuclear agreement with world powers, in an attempt to avoid competition for market shares that could harm prices.
The International Energy Agency says the success of the talks could lead to the lifting of US sanctions on Iran’s exports, bringing 1.3 million barrels per day of Iranian oil back to the market. That could ease tight global supplies and ease some of the tension that has pushed oil prices to just under $100 a barrel. And Iran is excluded from the current agreement between the Organization of the Petroleum Exporting Countries (OPEC) and its allies, in what is known as the (OPEC +) group, to limit oil supplies, due to the impact of sanctions on its exports. Sources said that while this exception would allow Iran to increase production, OPEC+ would eventually seek to include Iran in the deal.
“It is very likely that OPEC will include Iran in the agreement because there is no other option,” an OPEC + source said, adding that an agreement on reviving the nuclear deal appeared imminent.
A source familiar with the Iranian situation said Tehran would first seek to restore its lost production, but would likely agree to a quota after talks with OPEC+. Iran is one of the five founding members of OPEC.
Iran is pumping about 2.5 million barrels per day, about 1.3 million barrels less per day than it was in 2018 when former US President Donald Trump withdrew from the nuclear deal and reimposed sanctions, significantly reducing Tehran’s oil revenues.
“By lifting the sanctions, Iran will increase its oil production according to its facilities, capabilities and interests, to compensate for the lost oil revenues,” the informed source said. “In my opinion, OPEC + will set a quota for Iranian oil production but will implement it gradually, and Iran will accept the quota with some bargaining to show its support for OPEC,” he added.
Barkindo “optimistic”
In response to a question about whether (OPEC +) will conclude a new agreement on supplies that includes Iran, the Secretary-General of the Organization of the Petroleum Exporting Countries, Muhammad Barkindo, said that the group’s record enhances confidence in this.
“After steadfastness over the past five years since the establishment of the historic partnership between OPEC and non-OPEC countries that helped us expand into the two oil circles, we have every reason to be reasonably optimistic going forward,” he told Archyde.com.
(OPEC+) is gradually increasing oil production after reducing it to a record in 2020, when demand collapsed due to the pandemic. But it failed to achieve its goal because some producing countries did not make the necessary investments or maintenance of oil fields during the pandemic to keep those facilities ready to increase production quickly.
For the United States, it would make sense to lift sanctions on Iran to help lower prices given the domestic pressures the Biden administration is facing due to rising inflation. A source familiar with the Russian situation said that the United States might also consider that any production from Iran would mitigate the impact of any conflict between Russia and Ukraine on global oil markets.
“The United States will definitely lift sanctions on Iran once they decide to put more pressure on Russia given the current tension over Ukraine,” the source added. Iranian oil will calm prices.”
Bridging the quota gap
Sources from (OPEC +) indicated that the additional Iranian supplies could also help to bridge the gap in the OPEC production target that it did not achieve.
And (OPEC +) did not deal with this problem, for example, by having major producers step in to increase production to compensate for the shares of those who cannot achieve this. These conversations can be difficult because they touch on sensitive topics such as the country’s standing and market share.
But any nuclear agreement is likely to force (OPEC +) to redistribute its quotas to make way for Iranian oil, as was the case in past years. (Archyde.com)