[ad_1]
An offshore oil platform managed by the National Iranian Offshore Oil Co.
Photo:
Ali Mohammadi / Bloomberg News
No, the laws of supply and demand have not been suspended with respect to oil and Iran.
The 15% drop in futures on Brent crude last month, ahead of Monday's re-imposition of sanctions on oil exports, makes sense. What comes next is much more complicated.
Iranian exports fell by around 800,000 barrels a day between June and September and could still fall, but the market is able to cope for now. Analysts at RBC Capital Markets estimate the decline could reach 1.3 to 1.7 million barrels per day by the first quarter of 2019.
According to the Organization of the Petroleum Exporting Countries, Iran's production has decreased by only half of its exports. Before its production is seriously reduced, Iran can store tens of millions of barrels of onshore floating storage and then more expensive. While exports have probably fallen sharply again in October, they are expected to rebound this month as the Trump government announced significant 180-day waivers to major Iranian crude buyers, including India and China. .
One of the reasons why prices reached their highest level in four years early October is that it became apparent that the growing production of Saudi Arabia and Russia would not be enough to plug the hole left by Iran. In the United States, shale supply growth remains temporarily stalled by infrastructure bottlenecks. The International Energy Agency estimates that the market will run a deficit of about 200,000 barrels per day during the quarter, compared with a surplus of 300,000 barrels per day in the second quarter, before penalties are reimposed.
For now, the decline in Iran's supply during a generally sluggish period for oil consumption has helped many refineries come on stream after the summer driving season. The mid-term elections in the United States also helped. Even as he foresaw much tougher sanctions against the Obama administration than against the Iranian administration, President Trump complained over the summer of the fact that oil prices were too high – presumably to control the anger of potential voters. While OPEC only cajoled until then, hints that sanctions might be flexible in recent weeks have scared speculators out of the market, putting pressure on prices.
If global economic growth does not slow as a result of a trade war and if sanctions tighten significantly next spring, the first half of 2019 could see a significant rebound in prices. However, this could be short-lived as US production is expected to accelerate by mid-2019.
Iranian production has dropped from one million barrels a day from the peak to the previous nuclear sanctions. Once world production can fully replace Iran's blocked exports, perhaps next summer, the sanctions could be much more severe.
