Baku, Azerbaijan, May 16
By Leman Zeynalova – Trend:
The decision by the United States to withdraw from the Joint Comprehensive Plan of Action regulating Iran's nuclear activities has switched the focus of oil market analysis from the fundamentals to geopolitics, the International Energy Agency said in its Oil Market Report.
On May 8, the US President Donald Trump announced that Washington walks away from the nuclear accord. Trump also announced that the US re-imposes the "highest level of economic sanctions" on the Islamic Republic.
Iran said it will not continue the implementation of the JCPOA without receiving enough guarantees from three European countries, including the UK, France, and Germany.
“In these early days, there is understandable uncertainty about its potential impact on Iran's oil exports, which are currently about 2.4 million barrels per day (mb/d). There is a 180-day period for customers to adjust their purchasing strategies and it remains to be seen how waivers and other aspects of the sanctions will be implemented. In addition, other signatories to the JCPOA have said that they will continue with the agreement,” said the report.
IEA experts recall that when sanctions were imposed in 2012, Iran's exports fell by about 1.2 mb/d.
“It is too soon to say what will happen this time, but we should examine whether other producers could step in to ensure an orderly flow of oil to the market and offset a disruption to Iranian exports. Neither Venezuela nor Mexico can raise output in the short term, but some of the 1.5 mb/d that have been cut by other producers under the Vienna Agreement might be available to keep markets well supplied. A statement by Saudi Arabia shortly after the US announcement acknowledged the need to work with producers and consumers to mitigate possible supply shortfalls. This is especially welcome since the possibility of lower Iranian exports is not the only supply risk hanging over the market today,” said the report.
IEA believes that in Venezuela, the pace of decline of oil production is accelerating and by the end of this year output could have fallen by several hundred thousand barrels a day.
“Our April data show that Venezuela's production is 550 kb/d lower than its target under the Vienna Agreement and this "excess" is more than Saudi Arabia's total commitment. The potential double supply shortfall represented by Iran and Venezuela could present a major challenge for producers to fend off sharp price rises and fill the gap, not just in terms of the number of barrels but also in terms of oil quality,” said the report.
The decision by the US Administration had, to some extent, already been factored into oil prices, according to IEA.
“Even so, alongside steady demand growth, solid compliance with the Vienna Agreement, and new data showing a further fall in stocks, it contributed to Brent prices rising above $77/bbl,” said the report.
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