Saturday, July 7, 2012

A New Normal for Iran’s Oil Industry

Significant Cutbacks in Exports and Production Expected

A week after the EU embargo of Iranian oil and its ban on insurance coverage of tankers carrying Iran crude, a picture of significant cutbacks in Iran’s oil exports and production is emerging. A survey of oil-related news sites shows that Iran will export an average of 1.1 million barrels per day in the month of July. This figure includes 890,000 bpd delivered to Asian customers.

With prices hovering at around $100 per barrel, Iran’s estimated oil revenues for July would be at a maximum of $3.4 billion. (Considering that Iran heavy crude normally sells few dollars off the dated Brent benchmark, and the fact that Iran has so many tankers filled with unsold crude and in need of deep discounts to sell their cargo, the actual revenues would be closer to $3 billion for the month.)

In July 2011, Iran exported an average 2.2 million barrels per day, and with prices at $110, its monthly revenues were at $7.5 billion. Meaning that Iran in the first month under full sanctions would lose 55 percent of its oil revenues. This is a serious blow to the country’s economy. 

Meanwhile, Iran needs to store the unwanted oil somewhere. The latest figures available show that in April, Iran had to deploy half of its tanker fleet to store oil at anchorage in the Persian Gulf, equating to 33 million barrels of unwanted crude, with capacity to store a further 8 million barrels. (Reuters, 7 July)

However, taking up so much of its tanker fleet capacity to store oil, Iran will find it increasingly more difficult to deliver crude competitively to its Asian customers, like China, India and Japan, on its own tankers insured by Iranian companies (the only alternative to avoid the EU ban on tanker insurance).

Sooner than later, Iran is expected to cut its oil production. With the current trends in exports, Iran might end up cutting production to below 3 million bpd, the lowest since the end of Iran-Iraq war. This is of course easier said than done. Rapid closure of oil wells could seriously and permanently damage them. It is not like turning off the faucets at will.

In the absence of an agreement with the West on its nuclear program, Iran sanctions would remain in effect and its oil customers would even need to further cut their imports to stay in compliance with the new U.S. sanctions. The next few months would be critical for Iran’s oil industry. A new normal is taking shape.

19 comments:

Anonymous said...

The oil sanctios are the last instrument for pressure&Blackmailing by western countries

If Iran could manage it, then is nothiung more left.

Nader Uskowi said...

What do you think? Can Iran manage the loss, and how?

Anonymous said...

oil dependency
of course every problem is a chalange

to manage the country with less oil income is a great challange

the loss of oil income is the chalange to increase non oil export.

now we will see how good/bad is the iranian government.

Anonymous said...

There will be no export of products from Iran because the Chinese have seen to that when all the factories are closing down and workers being laid off.
So much for your challenge.
Iran relies on 80 percent of its export which just so happens to be oil.
No OIL=NO MONEY and No MONEY=BIG trouble.
This regime hasn't the time to challenge anymore because it has blown it.

Anonymous said...

---."...nothing more left." ----



how absurd that is.

do you always overlook the obvious?

Anonymous said...

Anno July 7, 2012 3:32 PM

the non oil export of iran is rising in the recent year constant

http://www.presstv.ir/detail/2012/06/28/248452/iran-nonoil-exports-grow-sevenfold/

Anonymous said...

Anno July 7, 2012 3:48 PM

please be too kind and exßplain us, what these bankrupt western countries can do more pressure after oil sanctions ?

I say, They hat shoot their last bullet.

Mark Pyruz said...

The Iranians have had time to plan for this. It's easier to track the "above board" status of Iran's petroleum exports, less so the "below board."

The most affected by these sanctions will be Iran's middle class, which is not where Iran's regime sources the bulk of its support., with the actual aim of these sanctions less intended as they are toward the nuclear issue, and more so intended toward regime change. In this regard, I'm skeptical the intended result will be successful.

Good news for us Californians, in all this: the price of premium has now dipped to $3.95 a gallon. Iran's saber rattling may have kept the Brent price from dipping lower than it might have, but we consumers in California are still seeing price decreases at the pump.

Anonymous said...

I'm so glad that the regime can't export more oil because all they do with this money is steal it or give it away to Hezbollah Syria Lebanon and other terrorist causes. The Iranian nation for them to realize that the occupying regime in Iran is an anti Iranian entity.
May god save the Iranian nation from the clutches of the vultures that are occupying the nation today.

Anonymous said...

anno July 7, 2012 7:47 PM

I am also very happy, I am quite sure they let enough oil for your people comes to power from exile.

Anonymous said...

@ Mark,

I didn't think gas was that expensive in the US. And you're saying the price has gone down. At least you guys have some oil reserves which is refined for public consumtion, which helps alot, keeps the price from soaring too high.

Anyways, if you thought you were having it bad, then check this out, it will blow your mind. I live in Sweden (no oil resources) where the price is sky high, we pay 8.53$ per Gallon ... down from 8.72$ since last week. More and more people are becoming inclined to take the bicycle to work or other places, for distance up to 20km. I myself won't move my car unless absolutely neccessary.

Anonymous said...

Anon 9:24 AM

Ha Ha Ha! My people are living in Iran.

Anonymous said...

Anon 9:24 AM

if you are living long time in US or somewhere else in Exile, you have no people im iran.

your family will forget you.
out of sight, out of remember

Anonymous said...

Anon 4:36 PM

Ha Ha Ha! You may live in "Exile", speak for yourself!
I'm safe and snug and keeping an eye very closely on the terrorists occupying our country!
LOL!

Anonymous said...

Nader,

The oil sanctions may be a blessing in disguise for the future of the country. As we have seen these guys have been recklessly and foolishly squandering oil revenues in disgraceful ways! The blessing may be that oil resources remain in a safer place under ground, with no storage costs, good chance of appreciation and no chance of being frozen by foreign powers. Perhaps the long-term effect will be potential damages to future production capacities of wells but I consider it as marginal compared to what can be gain. As for non-oil exports, it is very much doubtful that the drop in oil exports can be compensated will meager increases in non-oil exports considering that non-oil exports is about 30% of oil exports. The Central Bank (Bank Markazi) has just said that Iran has about $100b in foreign exchange reserves, a claim that cannot be independently confirmed. Even if that is the case, it will not last too long to cover the country’s foreign exchange needs.

Azar in MD

Anonymous said...

Nader,

The oil sanctions may be a blessing in disguise for the future of the country. As we have seen these guys have been recklessly and foolishly squandering oil revenues in disgraceful ways! The blessing may be that oil resources remain in a safer place under ground, with no storage costs, good chance of appreciation and no chance of being frozen by foreign powers. Perhaps the long-term effect will be potential damages to future production capacities of wells but I consider it as marginal compared to what can be gain. As for non-oil exports, it is very much doubtful that the drop in oil exports can be compensated will meager increases in non-oil exports considering that non-oil exports is about 30% of oil exports. The Central Bank (Bank Markazi) has just said that Iran has about $100b in foreign exchange reserves, a claim that cannot be independently confirmed. Even if that is the case, it will not last too long to cover the country’s foreign exchange needs.

Azar in MD

Anonymous said...

Gas prices are low in the states compared to other part of the world. The cost of 1 Liter of gas in the EU is higher. In certain EU countries prices have reached unbelievable new highs.

Unknown said...

If I understand everything clearly, the said oil hike will be caused by the transition of ownership from the middle east suppliers to American operators, right? Well, if the so-called changes will just cause increase in the overall pricing of oil all over the world I guess it's just better to just let it be in wherever or whatever form it is cause if that plan pushes through I'm predicting many people will not like it. And this also means that everything that's related to oil milling would be affected right? Including the machinery that they will use like the flare stack, the igniters.

Unknown said...

I think got a lot of good reasons that's why the government decided to pushes it through. I think this will also help all the oil companies in Calgary and all over the world just like the EU to have a better equipment and to provide quality products to all the oil and gas users.