Fears that Western sanctions against Iran over its nuclear program will cause a deficit in oil supply compared to demand are apparently unnecessary as senior oil executives, traders and strategists see little chance of significant supply disruption this summer.
Samuel Ciszuk, Middle East and North African (MENA) analyst at consultancy KBC Energy Economics, said that “The oil market should be very well supplied this summer – even better than now. Volumes from Iraq should be up significantly, Libya is doing very well and Saudi Arabia will increase production to compensate for some of the lost Iranian barrels.”
Saudia Arabia is the world largest exporter and has already promised to cover for any shortages caused by the situation in Iran. They currently produce nearly 10 million barrels per day (bpd) and could easily increase this by as much as 500,000 bpd. Iraq has just this month put online a new oil terminal in the Gulf hoping to increase its own exports by 400,000 bpd, and Libyan production is rapidly increasing. Currently production levels are at 800,000 bpd, but they hope to increase exports by 500,000 bpd by the third quarter of the year.
So at least one million bpd could be entering the markets from these three producers alone, possibly double the volume of Iranian exports lost. So Europe will have little difficulty finding alternative sources of oil, even though they may have to pay a bit more.
Although oil prices have recently increased due to the worries about Iranian oil supplies the high prices predicted by the IMF should not occur. As I have stated the supply will not decrease, in fact it is more likely to increase. Nor will there be any surge in global demand, again it is more likely to decrease, due to European economic problems and a slowing of the Asian growth of recent years.
There is little to worry about really. If anything does happen in Iran oil will still keep flowing and the world will still keep turning. The West will get its oil from other sources and Iran will sell more to Asia. Total SA Chief Executive Christophe de Margerie told Reuters that “(Iranian) oil will go somewhere else. Iran may give a discount to make it easier and quicker but nothing will change.”
By. James Burgess of Oilprice.com
James Burgess studied Business Management at the University of Nottingham. He has worked in property development, chartered surveying, marketing, law, and accounts. He has also…