Iran finally provides silver lining on darkening oil clouds

Iran finally provides silver lining on darkening oil clouds

An N-deal is just a hope to ease the pressure amid tensions in Ukraine

By K Raveendran

Iran has always provided an element of shock to the global crude market, often scaring the market with antics related to the disruption of supplies, thanks to its overall intransigence on the nuclear deal. But for a change, Iran is now proving to be a reassuring prospect even as the clouds gather over the Ukraine conflict, causing much discomfort for market agents even as prices hover around the centenary.

The shaky ride on the back of escalating Russian tensions, despite Putin’s seemingly conciliatory tone on crucial troop deployment along Ukraine’s borders, coupled with bleak Libyan supply prospects, has been somewhat reassured by the continuation of Iran’s nuclear talks, which balances some lingering concerns about Eastern Europe.

Developments in Eastern Europe will be crucial for the global oil market as Russia is one of the largest crude oil producers with a capacity of around 11.2 million bpd. Any disruption in oil flows from the region would send Brent and WTI prices skyrocketing well above $100, in a market that struggles to meet increased demand for crude as economies recover from the pandemic.

The progress of talks between the United States and Iran over a possible nuclear deal, which would see Iranian crude return to the market, is keeping prices in check. Market participants are aware that Iran is one of the few additional sources of supply available that can help meet demand and calm prices, so the outcome of the talks is crucial. Analysts believe an additional 1 million bpd of crude production could hit the market under a full lifting of sanctions, but the jury is still out as the next news of the political gambit in Vienna is expected. In this context, the assurances given by President Biden to Saudi Arabia last week have increased the chances of an agreement.

White House directives for U.S. citizens in Ukraine to leave in the next 24-48 hours as the threat of war escalates sent chills through the crude market. The oil and stock markets reacted strongly to this turn of events, although Russia continues to maintain its position that it will not declare war on Ukraine. Meanwhile, strong comments from US diplomats supporting Ukraine and NATO in every possible way continue to fuel speculation of a full-scale war between Russia and NATO forces in the near future. .

The main concern is that the threat of war and disruption may send prices skyrocketing as the oil market is on edge, looking for clues. Given the current tense situation in crude markets, further oil supply disruptions arguably could not come at a worse time.

Oil analysts are studying different scenarios for price spikes. A price range between $70 and $100 per barrel, for example, should lead to a significant increase in production in the fourth quarter of 2022, while an extended run of $90 to $100 per barrel would lead to a further increase in the price already in place. reprise. drilling activity from the second quarter of 2022.

Beyond 2023, WTI at $100 will allow the industry to achieve average annual growth of around 960,000 bpd, from the fourth quarter of 2021 to the fourth quarter of 2025. A world at $70 will still allow a cycle sustainable growth, but the average annual rate is limited to around 560,000 bpd.

In a scenario at 100 dollars per barrel, a gradual deployment of additional platforms would materialize from the second quarter of this year, driven by both private operators and independent public producers. A fundamental shift in the operational philosophy of public exploration and production is emerging, with many responding to a global call for tight oil growth.

Energy consultant Rystad Energy predicts that up to 2.2 million barrels per day of US tight oil could be released in the event of a supercycle – with oil prices remaining around or above $100 a barrel – due growing demand and continued shortage of supply.

High oil prices are encouraging operators to increase production as supply from sources outside the United States remains limited. Global concerns over Covid-19 are fading and countries are removing or easing restrictions, causing demand for oil to surge that current supply would struggle to meet. In addition, geopolitical uncertainty in major exporting countries is deepening, threatening to disrupt trade flows amid already constrained availability.

All of this points to a further build up of pressure points to support even higher prices and anything above $100 a barrel would spell absolute disaster for consuming countries like India. (API Service)

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