TEHRAN, Feb. 24 (Shana) — If production freeze by oil-producing countries continues until the third quarter of 2016, the return of 1.5mb/d of Iranian crude oil will not dent the prices any more.
If freezing is good for everyone, then, “you freeze your production at 1mbd and we freeze it at 10mbd,” he said in an economic conference in Tehran on Tuesday.
US oil production during the same time, thanks to the shale boom, has increased by nearly 3.08mbd.
The global crude oil production between 2011 and 2014 shored up prices to high that each barrel of oil was sold at over 100 dollars in the market; however, after 2014, production grew very rapidly to outpace demand and lower the prices to less than $30 these days.
Meanwhile, Iran, as the third major producer of oil in the Organization of Petroleum Exporting Countries (OPEC), has emphatically announced it will regain the market share it lost after 2011 sanctions by adding 1.5mbd to its crude oil output. The country has also said it will spare no effort to gain new markets in the world.
Under the current circumstances, other crude oil producers must cooperate with Iran to recapture its market share. This is a strategy that must be seriously regarded by Iran’s rivals in the oil market, because, given the Iranian economy’s 20% dependence on oil dollars, and the price slump will not deal a heavy blow on Iran, while the story is totally different for other producers including Russia, Saudi Arabia, Qatar, Kuwait, UAE and Iraq, as their economies are deeply dependent on oil export revenues. As a result, the blow from diminishing prices will be the much greater on these countries’ economies than that in Iran.
If major oil producers fail to reach an consensus to curb production to shore up the current prices from below $30/b, they will have to undergo $1,600bn in oil revenue losses which can reach $3,000bn considering the subsequent reductions in prices of petrochemicals and refined products.
Meanwhile, the countries that overtook Iran’s market share while it was under international bans for selling its oil have now come forward to foist off their lack of ability to raise investments for boosting their production capacity as a stylish production “freeze plan” on Tehran.
The current 1.7mbd glut in the market is an alarm for national budgets of these countries.
International Energy Agency (IEA) has estimated that the global demand for crude oil in the first quarter of 2016 will be about 94.5 mbd which will rise by 95 mbd in the third quarter and 96.5mbd in the last quarter of the year.
Otherwise, if the market glut stays at the current 1.7 mbd and OPEC and non-OPEC producers refuse to make room for Iran’s incoming crude supplies to the market, nothing would help shore the prices up unless market factors other than fundamental factors or the global economic growth save the prices.