Iran returning to the oil market may spoil the game

30 november 2015 | RBC

Lifting the oil embargo from Iran will lead to supply growth in the already oversupplied world oil market. Experts are sure that the growing supply of Iranian oil will not lead to decrease in the Urals market share but will contribute to decrease in the oil price.

Alexander Kurdin
Alexander Kurdin
Department for Fuel and Energy Sector

‘In such conditions when reserves are not ‘cleared’ there is no way the price will grow. If we stabilize the OPEC’s production even at this high level, the market will be almost balanced by the end of 2016 due to substantial demand growth,’ Alexander Kurdin, the Head of the Department for Strategic Studies in Energy of the Analytical Center, commented on the situation to RBC. Iran returning to the oil market may spoil the game, according to the expert. “The Iran’s share was taken by other OPEC’s producers, and the question whether they can and want to cut this revenue now, being under budget hardships, remains open. If they do not make a deal, the stabilization of the market will take more time – 2 years,’ said Mr Kurdin.

Iranian oil cannot oust Urals from the EU market as the Iranian deliveries volume is significantly lower; moreover, the Iran’s export structure prioritizes Asian markets. However, local competition in Southern Europe will surely gather momentum, according to the expert. ‘In October 2015 the Iran Heavy price amounted for less than $45 p/b, which is lower than Urals ($47–48 p/b), Brent ($49 p/b) and WTI ($46 p/b). Some technical hurdles may occur when the raw is substituted as not always and not all enterprises can easily work with a new kind of oil,’ said Mr Kurdin.

Iran has no highways for oil deliveries to the EU, and constructing new pipelines requires intensive investments and a project approved by all countries which will carry this pipeline, according to the expert.