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After Rallying 14%, Can Oil Go Even Higher?

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Iran Expected To Approve New Oil Contract Models This Week

Bijan Zanganeh

It’s expected that Iran will approve a new model for oil contracts on Wednesday that should open the door for foreign investors to help the country reestablish its energy sector.

Oil Minister Bijan Namdar Zanganeh stated Monday: “We are awaiting government approval due to be out on Wednesday. Our priorities will be jointly owned oil and gas fields, as well as those in which we are after improved oil recovery.”

He added that the bulk of investor interest has come from Europe. Iran has spent the last two years looking for foreign investors such as Eni and Total SA to develop its resources. Iran hopes those investments will bring in approximately $50 billion per year.

Before sanctions were ratcheted up in 2012, Iran was producing over 4 million barrels of oil per day. When those sanctions were lifted at the start of 2016, production in the country went from 2.8 million barrels per day to 3.5.

Also on Monday, Zanganeh stated that the oil market was oversupplied, but added that a balance between supply and demand will be restored. According to a Reuters’ survey, OPEC’s output was expected to reach its highest level in recent history with Iraq continuing to pump more crude oil and Nigeria exporting more even with the flurry of militant attacks. OPEC’s output increased to 33.41 million barrels per day last month.

Related: Expert Commentary: Don’t Be Fooled By U.S. ‘Production Gains’

As part of the new contracts, Iran is offering better terms to foreign investors, which needs investors to provide $200 billion in foreign cash.

Zanganeh is confident that the government will approve the new contract models, while Supreme Leader Ayatollah Ali Khamenei said last month that no new contracts would be awarded without necessary reforms.

The Iran Petroleum Contract, which is the name for the new contracts, has already been postponed serval times, when the rivals of President Hassan Rouhani resisted deals that cou¬ld end the buy-back system. European oil majors have stated that they intend to return to Iran if changes are made to the buy-back contracts used in the 1990s, which either resulted in no profits, or in losses for companies.

Lincoln Brown for Oilprice.com

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