Sources close to OPEC+ said that if the parties reach an agreement to restore the Iran nuclear deal, OPEC+ will work to include Iran in its oil supply agreement to avoid market share competition that could affect prices.
The International Energy Agency (IEA) said that if the Iranian nuclear negotiations are successful, the United States may lift sanctions on Iranian exports, which may allow 1.3 million barrels per day of Iranian oil to return to the market. This could ease global supply constraints and cool oil price gains.
International oil prices have approached US$100 per barrel. Due to the impact of sanctions on Iranian exports, Iran is currently not within the scope of the OPEC+ agreement to increase production.
Sources said on Friday that although the waiver allows Iran to increase production, OPEC+ will eventually seek to include Iran in the oil supply agreement.
“OPEC is very likely to include Iran in the deal because there is no other option,” an OPEC+ source said, adding that talks to revive Iran’s 2015 nuclear deal were taking shape. A source familiar with Iran’s thinking said Iran would first seek to restore its lost output but could agree to quotas after talks with OPEC+. Iran is one of the five founding members of OPEC.
“In my opinion, OPEC+ will set quotas for Iran’s oil production, but implement the process gradually and Iran will accept the quotas through bargaining to show its support for OPEC.”
Asked whether OPEC+ would work out a new supply deal that would include Iran, OPEC Secretary-General Barkindo said the organization’s past record gave people confidence. “The historic partnership between OPEC and non-OPEC has helped us through two oil cycles over the past five years, and we have reason to be reasonably optimistic about the future,” he said.
OPEC+ is gradually increasing oil production after cutting production in 2020 as demand collapsed due to the coronavirus pandemic. But it fell short of expectations because some producers did not make the necessary investments or maintenance in oil fields during the pandemic to prepare the facilities to ramp up production quickly.
For the United States, lifting sanctions on Iran could help lower oil prices, given the domestic pressure faced by the Biden-led administration due to rising inflation. A source familiar with the Russian oil market said that given the tensions in Ukraine, the United States will definitely lift sanctions on Iran once it decides to put more pressure on Russia.
Diplomats also said the draft agreement outlined a series of steps that would eventually lead to exemptions from oil sanctions, but the timing was unclear.
Vandana Hari, founder of oil market analyst Vanda Insights, said in a report: “The prospect of a deal is likely to continue to put downward pressure on crude oil… unless the parties remain deadlocked as they conclude the latest round of talks.” Hari added that the premium over crude oil concerns over the Ukraine crisis has slowly started to shrink.
Still, analysts don’t expect oil prices to fall much in the short term as OPEC+ struggles to meet its production targets, even with possible increases in oil supplies from Iran.
As air travel and road traffic pick up, oil demand is also recovering, and Commonwealth Bank of Australia expects Brent oil prices to remain between $90 and $100 a barrel in the short term, while “if tensions between Russia and Ukraine escalate,” “Easily” above $100.
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