Iran's Oil Production Rises To Pre-Sanctions Levels, But Likely Won't Change OPEC Stance

Iran’s Oil Production Rises To Pre-Sanctions Levels, But Likely Won’t Change OPEC Stance

Iran has achieved success in boosting its oil production to its highest levels since 2011, but analysts are saying it now has no incentive to join other Organization of Petroleum Exporting Countries (OPEC) members in freezing production to raise global crude prices.

The Islamic Republic, which has been subjected to Western sanctions for years, is only now beginning to feel some economic relief in wake of the nuclear deal reached with several major world powers last year. Sanctions were lifted in January, and now that it’s doing well, Iran feels little need to join in calling for a production cap on oil, and with global prices on the rise, analysts see no need for immediate action towards an output freeze. Supply disruptions in Nigeria, Canada, Venezuela, and Libya, as well as slowdowns in the U.S. and Brazil have all contributed to the crude prices being near the highest since November.

This has led to new market opportunities for oil, and reduced the urgency of OPEC members to agree to a freeze to raise prices when they next meet on June 2. Iran has added 700,000 barrels of oil a day to its output so far in 2016, according to Bloomberg data.

“The Persian Gulf nation is rebuilding its energy industry and restore crude sales after the lifting of international restrictions in January. Seeking to ramp up output and exports to pre-sanctions levels, Iran refused to join other producers in a push to freeze output at a meeting last month in Doha. The talks, which Iran didn’t attend, ended in disagreement after Saudi Arabia refused to limit production without the participation of all members of the Organization of Petroleum Exporting Countries.”

Iran has boosted its crude production sooner than anyone expected, and a report released today by the International Energy Agency says that their production is way up, a rate they last achieved in November of 2011, as Quartz reported.

“In a report released today, the International Energy Agency said that Iran produced 3.56 million barrels of oil a day in April, some 680,000 barrels more than it did a year ago. That puts Iran back to its pre-sanctions production level from 2011, and counterbalances supply disruptions from the fire in Canada’s oil sands, and the shutdown of a big oil pipeline in Nigeria.”

The country is also looking to boost a further 300,000 barrels worth of crude production capacity to its fields in the West Karoun region. So far, Tehran has been meeting its own objectives, and the current projections say there’s reason to believe that this one will be any different. With Iranian production at its highest in more than four years, OPEC’s exports have subsequently been their highest in eight years. Brent Crude, a global benchmark, is now hovering around $48 a barrel, but would possibly be higher without the Iranian surge in exports.

“Producers don’t need to freeze output because a balancing of supply and demand is happening already,” Bansal of consultant FGE said to Bloomberg on Thursday. “Iran could come to the table and say, ‘We’re ready to freeze,’ but with OPEC producing near a record, it wouldn’t mean anything for the markets.”

Prices are up more than 60 percent since January of this year, when they were at their lowest in 12 years. Analysts are not expecting OPEC to take any significant actions next month after the previous talks collapsed. The real question now is if the ongoing economic and geopolitical rivalry between Saudi Arabia and Iran will manifest in Saudi output increasing in order to undermine Iran and grab up market shares.

Bloomberg estimates that Saudi Arabia could add another million barrels to its production immediately if it wanted, even though the Kingdom has announced a massive reform program to wean itself off its long-standing oil dependence.

Iran is seeking to attract more than $100 billion in investment from oil multi-nationals in a plan to develop over 70 new projects in its crude and natural gas industries. The government will offer the first contracts in June.

[Photo by IIPA via Getty Images]

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