News ID: 151979
Published: 0814 GMT May 24, 2016

Iran fulfills pledge to raise oil production

Iran fulfills pledge to raise oil production

Iran is fulfilling its pledge to raise oil production and exports almost six months after Western sanctions on the sector were lifted, surprising many analysts and commentators.

Oilfields pumped almost 3.6m barrels a day in April — a level last reached in November 2011 before sanctions over Tehran's nuclear program were tightened — said the International Energy Agency. Crude exports surged to two million barrels per day (mbd) in last month, just 200,000 barrels per day below late 2011 levels, Financial Times reported.

Iran is engaged in a battle for market share with Saudi Arabia and other regional rivals in its efforts to regain customers after years of curbed oil sales that crippled its economy.

Mike Wittner, oil analyst at Société Générale, said, "Most people felt the Iranians were talking a big game ahead of the lifting of sanctions. This was an oil market wild card and they have surpassed our expectations."

Although some of April's crude sales could be due to loadings carried over from March, this month should see a further increase as Iran releases more barrels just as the oil market glut begins to subside.

Rokneddin Javadi, head of Iran's state oil company, said at the weekend there were no plans to join any output freeze — a potential deal was thwarted last month in Doha, Qatar — as it is still raising exports to pre-sanctions levels, to at least 2.2 mbd.

"Under the present circumstances, the government and the oil ministry have not issued any policy or plan to the National Iranian Oil Company towards halting the increase in the production and exports of oil," Javadi told a domestic news agency.

The comments suggest the prospects of a deal to curb production at next week's OPEC ministers' meeting in Vienna are slim.

Iranian politicians have made a commitment to their people to rebuild production and exports almost halved by the Western sanctions, say analysts. This has made any moves towards a deal with OPEC kingpin Saudi Arabia impossible. Pressure to strike a deal urgently has eased as the price of Brent crude has rebounded 70 percent from its January lows.

Tensions between the regional rivals were evident last month when a plan for OPEC countries and other big producers to freeze output unraveled after Tehran rejected Riyadh's demands that it join in.

Saudi Arabia has also taken steps to slow Iran's efforts at increasing oil exports by banning carriers of Iranian crude from its waters, say traders and shipbrokers.

Even so, Iran has shipped more crude oil to India, China and other countries it was permitted to sell to under sanctions. It has also reestablished relationships with European buyers and secured new sales agreements with big international oil traders such as Vitol and Glencore, as well as energy majors such as Repsol of Spain.

Of the chartered tankers that loaded from February to the first week of May, 16 out of 21 were headed for Europe, shipbrokers say. About 12 of the National Iranian Tanker Company's almost 40 very large vessels are taking crude to existing customers in Asia, while the rest are storing it offshore.

"Selling crude is really no problem but the issue is on the financial side," said one Iranian official, adding that exports could have been higher if it were not for financiers holding back from doing business with Iran.

International sanctions, including those on banking and oil sales, were lifted in January as part of the deal with world powers under which Tehran agreed to limit its nuclear capabilities.

But US banks and financial institutions are still prohibited from processing payments related to Iranian oil and many of their European counterparts are wary of breaching the remaining US restrictions. Ship-owners and insurers are also wary of dealing with the country or clients that want to lift Iranian oil. Those that do are having to face higher costs to conduct trades.

Gerry Regan, deputy head of the sanctions policy division with the EU's diplomatic service, told a conference in London last week that the "full resumption of business activities [with Iran] will still take some time".

Although UK banks alongside those from Germany, Italy, Switzerland and Japan had reestablished relations with their Iranian counterparts, they "may not be in a position to facilitate complex and substantial financial transactions".

Tony Foster, chief executive of Marine Capital, the UK shipping asset manager, said ship-owners were also wary of chartering ships to businesses such as those controlled by the Islamic Revolutionary Guard Corps, which is still subject to sanctions.

"There are lots of outstanding issues," said Foster, despite valid international certificates and removal of shipping and insurance restrictions. "Even though sanctions have been lifted, you can't just go steaming in."

Many NITC tankers are aged and in need of replacement. Without access to Western financing, Iran will only look to China and elsewhere to upgrade its fleet, industry participants say.

"Until Iran has control over its shipping industry, it won't have control over its exports. And without that, its moves to secure market share become tricky," Foster added.

Resource: Financial Times
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