Iran has agreed to join an output freeze after it reaches 4 million barrels per day in production, which essentially means that it will not entertain any freezing of its output until it gets its production back up to its highest level since 2008.
This was the result of talks between Iran and Russia over the weekend, and it comes ahead of another meeting—possibly in April—between Russia and OPEC countries, and while not surprising, it still managed to send oil down Monday from its three-month high.
"As long as we have not reached 4 million bpd in production, they should leave us alone," Iranian Petroleum Minister Bijan Zangeneh said. Related: Choking And Lifting Preventing The Decline In U.S. Shale?
How long would we have to wait for Iran to join an output freeze? Not too long. It’s currently ramped up production to somewhere between 2.8 million barrels per day and 3.5 million barrels per day. But it won’t be in time for the tentative April meeting, which means that Iran would be excluded from any deal.
According to Zangeneh, Iran exported 1.75 million barrels per day last month and crude exports should hit 2 million barrels per day this month.
Russia seems to agree with the Iranian sentiment: Related: $67 Oil Has All The Majors Converging Here
"We share the opinion that Iran is in a special situation, as the sanctions imposed earlier have substantially reduced volumes of production in Iran by the current moment. Of course, the same approach to all countries that at this time have been increasing their production would probably not be quite fair toward Iran," Russian Energy Minister Alexander Novak told reporters following talks with Zangeneh.
It’s all added to fears of an even bigger supply glut.
Genscape, a market intelligence company reported an inventory build of 585,854 barrels in Cushing, Oklahoma, taking the delivery hub for U.S. crude futures closer to capacity, according to CNBC, citing traders familiar with the data. Related: Turkish Energy Security Under Threat
It’s definitely not good for OPEC, either, which despite all efforts, is losing market share. Demand for this year will be lower than originally anticipated for the OPEC members thanks to non-OPEC supply. And from the supply side, it looks even worse. OPEC supply will exceed demand by more than anticipated. OPEC had earlier estimated that supply would exceed demand by 720,000 barrels per day. Now, that estimate is up at around 760,000 bpd in excess of demand.
In the meantime, Iran is calling on the U.S. to remove restrictions that would keep American oil and gas companies from working in Iran. Iran’s oil minister also confirmed that its state-run company had held talks with General Electric. Separate U.S. sanctions still throw a wrench into investing in Iranian oil and gas, for the time being.
By James Burgess of Oilprice.com
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