Iran talks offer hope on oil prices

Oil markets

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Iran Nov13Iran has been at the centre of all the major oil market price spikes in the past few decades:

  • Today’s record prices on an annual basis are partly due to market fears over supply disruptions due to the Iran/Israel nuclear issue
  • Fears over a nuclear showdown also led prices to jump to $150/bbl in July 2008, when the blog then correctly forecasted that “if diplomacy works, they could easily fall $50/bbl to $100/bbl”
  • The ousting of the Shah in 1979 and the Iran hostage issue led to the Second Oil Crisis, when prices jumped from $14/bbl in 1978  to $30/bbl  (equal to $100/bbl in $2013)
  • Iran was also part of the OPEC oil embargo following the Yom Kippur War in 1973 that took prices from $3/bbl to $12/bbl ($50/bbl in $2013)

Now, a new era may be close as Iran seeks to return to world markets.  As the blog told Bloomberg yesterday:

“Lifting petrochemical sanctions will permit $1 billion in exports for Iran, according to U.S. officials close to the talks. Iran may not feel an immediate impact because it’s been able to ship materials such as polyethylene resins to China in violation of sanctions, Paul Hodges, chairman of International eChem, a London-based consulting firm, said in an interview.  Any future increase in Iranian supplies of oil and gas would trickle down to Europe’s chemical industry, creating a potential game changer for energy-intensive industries, including those making PVC, said Hodges.

“You’d have a traditional major producer coming back into the market and desperate to sell,” said Hodges. “This has suddenly the potential to change the whole outlook as there’s someone out there who wants to sell and also needs to sell.  Every single chemical plant in Europe would benefit.   That would be a bonus for companies from German plastics maker Bayer AG and synthetic rubber supplier Lanxess AG to Arkema SA of France and Solvay SA of Belgium, he said.”

As the chart shows, Iran has clear potential to be a major player once more in oil markets:

  • It produced 6mbd in the 1970s (black line) and was 10% of world oil output (green) and 21% of OPEC’s (red)
  • Last year it produced just 3.7mbd, and was just 4% of world output and 10% of OPEC’s
  • Its oil exports have fallen 60% to just 1mbd, compared to 2.5mbd before sanctions
  • So it has a lot of oil that could potentially come to market over time

Oil prices have been boosted since 2009 by fear over potential supply shortages and speculation funded by the central banks.  Now, both influences may be about to disappear, if the Iran dialogue continues to develop and the US Federal Reserve starts to ‘taper’ its spending.

This would be very good news for chemical companies, as it would likely move oil prices back down towards their historical parity with US natural gas prices.  It would also be very good news for Iran’s long-suffering population.

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