Iran and the United States may be nearing a deal, which would limit the upside potential for oil and possibly even cause prices to fall.
The new optimism for a nuclear deal that would see U.S. sanctions lifted from Iran came with a tweet from the main negotiator of the country, Ali Bagheri Kani.
"After weeks of intensive talks, we are closer than ever to an agreement; nothing is agreed until everything is agreed, though. Our negotiating partners need to be realistic, avoid intransigence and heed lessons of past 4yrs. Time for their serious decisions," Bagheri Kani tweeted late on Wednesday.
Oil prices immediately dropped following the tweet-and the media reports citing it-signaling what the effect of a deal would be if one was to be reached. At the time of writing, Brent crude and West Texas Intermediate were still trading lower, with Brent dipping below $93 per barrel and WTI at $91.77 per barrel.
Iran is already gearing up for a return of its crude to international markets. The country last year announced production ramp-up plans, and this week, media reported that officials from the state-owned National Iranian Oil Company had visited South Korea to discuss supply deals with local refiners.
If a deal is reached on Iran's nuclear program, the country could add 500,000 bpd to global oil supply between April and May, Citi analysts have said. According to Rystad Energy analyst Louise Dickson, Iran can ramp up production very quickly, in a matter of four to six months, and it also has substantial amounts of oil in storage to offer on international markets if sanctions are lifted.
If the negotiations fail, however, oil will jump higher, possibly hitting $100 as demand growth continues to outpace production, prompting the International Energy Agency to call on OPEC+ earlier this month to do more to boost production.
By Irina Slav for Oilprice.com
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Irina is a writer for Oilprice.com with over a decade of experience writing on the oil and gas industry. More
Comments
Even in the very unthinkable event that a new deal has been reached, the maximum Iran can bring to the global oil market won’t exceed 650,000 barrels a day (b/d) being the difference between Iran’s pre-sanctions and post-sanctions crude oil exports. This is a drop in the ocean in the current robust global oil demand.
I am on record having been saying since the nuclear negotiations started in Vienna that a lifting of US sanctions against Iran will never see the light of day soon or over. The reason is that the positions of the United States and Iran are irreconcilable.
The only deal acceptable to Iran is one on its own terms meaning a lifting of US sanctions against it first and no new restrictions on its nuclear and ballistic missile development programmes. This is something the United States egged by Israel can’t accept.
Iran isn’t in a rush to reach a deal unless all its demands are accepted sensing how urgent the Biden administration wants lower oil prices and how essential for it to concentrate all its effort on China and now on the Ukraine crisis.
And since it is successfully managing to evade US sanctions, it can easily tolerate US sanctions for a while and work instead on ejecting US military presence from Iraq, Syria and the Gulf region thus achieving a spectacular strategic victory over the Unite States.
Those negotiating with Iran in Vienna should always remember that the Iranians are great chess players and they are already using their skill in chess in Vienna.
Dr Mamdouh G Salameh
International Oil Economist
Visiting Professor of Energy Economics at ESCP Europe Business School, London