Energy Report: Iran Promises To Behave

Oil and product prices pulled back from the Texas energy crisis rally on the belief the market got overbought and talk of cargoes of oil and products being diverted to the US. Yet there was also some selling on reports that Iran is promising to behave and that the US may once again join the Iranian nuclear talks. Reuters reports that Iran will “immediately reverse” actions in its nuclear program when U.S. sanctions are lifted, its foreign minister said on Friday, reiterating Tehran’s position on Washington’s offer to revive talks. Reuters also reported that The United States on Thursday said it was ready to talk to Iran about both nations returning to a 2015 agreement that aimed to prevent Tehran from acquiring nuclear weapons, seeking to revive a deal that Washington itself abandoned nearly three years ago.

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The deal could add more oil to the market and could cause strain within OPEC. Yet not as much strain as before because believe it or not OPEC spare capacity is more limited than you might think. Let's talk about Iranian oil first. Iranian oil exports were as high as 2.8 million barrels per day (bpd) in 2018 but fell to 300,000 bpd in 2020. Recently illicit oil exports raised that number to about 1.2 million barrels a day. So best case expectations would be for another one million barrels a day increase from the Iranian state. Saudi Arabia is signaling that in April that they will reverse their voluntary 1.0 million barrel a day cut, so depending on the timing, that could add 2.0 million barrels of oil a day to the market. Yet based on recent supply and demand data, that oil might be needed.

The Energy Information Administration reported that US oil inventories fell by 7.3 million barrels from the previous week. At 461.8 million barrels, U.S. crude oil inventories are just at the five-year average for this time of year. We all know that those supplies will fall below average next week as US oil production had the biggest production drop in history, falling over 4 million barrels of oil a day. This comes at a time when global oil inventories are plunging. Perhaps Iran has some oil in storage that they can release but not so in Saudi Arabia. 

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