Energy Report: Taking Iran Into Account

Oil futures are stagnating despite a very friendly American Petroleum Institute (API) supply report. The market is still concerned that Iranian oil will flood it, even though Secretary of State Antony Blinken thinks that Iran will not comply with the terms of the agreement that world powers are trying to negotiate. He also promised close consultation with Israel about any potential U.S. return to a nuclear deal between Iran and world powers. Reports that Iran is getting ready to ship a lot of oil are making the rounds. 

Yet while more Iranian barrels may be short-term bearish, it still might not be enough to meet the coming summer demand surge where oil, market spreads are suggesting, has a very tight supply outlook. And there is news that even if Iran does get the green light to produce, the OPEC Plus cartel may adjust their output to compensate for those extra barrels.

Photo by American Public Power Association on Unsplash 

Overnight Alexander Novak, former Energy Minister and now the Deputy Chairman of the Government of the Russian Federation say that the group, “Needs to consider possible oil output growth in Iran, which he says may be approximately 1 million barrels of oil per day. That could be setting the stage for an OPEC cut at their June 1st meeting, still no word on whether Russia will submit a plan for compensation cuts on their part for their overproduction.

Iran and Saudi Arabia are trying to improve relations and Russia is talking about an adjustment. It looks like we are headed towards a harmonious OPEC Plus meeting assuming those that have cheated on production offer up some compensation cuts.

Iraq for one may have a hard time doing that as was pointed out in the Financial Times today that the covid situation almost brought down the entire Iraqi economy. The FT reported that Ali Allawi, Iraq’s finance minister, found himself in a quandary last year as the spread of coronavirus cut demand for oil and prices tumbled. Allawi’s treasury, which receives more than 90 percent of its revenues from crude sales and spends 45 percent of its total budget on salaries and pensions, suddenly didn’t have enough money to pay millions of public employees and retirees. OPEC’s second-largest producer borrowed billions of dollars, mostly from local banks, to bridge the shortfall. But public anger boiled over. The fallout of the virus then battered businesses as their most important customers — public employees — cut their spending. Iraq’s economic fragility was laid bare, the hit to both public and private sectors caused the country’s gross domestic product to shrink 11 percent in 2020 according to the IMF, and poverty rose amid worsening unemployment.

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