OIL FROM IRAN
On July 14, the P5+1 (the five permanent members of the United Nations Security Council and Germany) and Iran announced an agreement that could result in relief from United States and European Union nuclear-related sanctions (which include some oil-related sanctions). If the agreement is implemented and sanctions relief occurs, it will put additional Iranian oil supplies on a global market that has already seen oil inventories rise significantly over the past year.
These additional Iranian supplies, along with relatively higher global oil production and comparatively slower global oil consumption growth, will contribute to large inventory builds next year, resulting in lower oil prices than previously expected. The North Sea Brent crude oil price, which averaged $57 per barrel in July, is expected to rise to an average of $59/barrel (b) in 2016. The previous outlook, published before the Joint Comprehensive Plan of Action (JCPOA) was announced on July 14, had anticipated 2016 prices at $67/b. Crude oil price forecasts are subject to significant uncertainty.
The initial effect of the JCPOA on oil markets will come from the release of Iranian inventories. Of the estimated 30 million barrels held in storage, more than half is condensate, and the rest is mainly medium, sour crude oil. The volumes in storage could boost total global supply by about 100,000 barrels per day (b/d) by the end of 2015. This estimate reflects the difficulties of finding buyers for the stored condensate, although much higher volumes may be sold should Iran provide discounts to encourage purchases.
The pace of the sales of oil from storage remains highly uncertain and will depend on the pace of sanctions relief and the availability of customers for Iranian oil and condensate. Iran may find it challenging to find buyers for the condensate, as current condensate prices indicate that consuming markets, particularly in Asia, are well supplied. By contrast, the crude oil held in storage could be sold more quickly, as price differences currently indicate more demand for medium, sour crude compared to lighter, sweeter crude. There is evidence that initial volumes are already moving out of floating storage.
Iran is also expected to increase production as sanctions are lifted. EIA estimates that Iran has the technical capability to increase crude oil production by about 600,000 b/d by the end of 2016. The pace and magnitude at which additional production volumes reach the market depend on how quickly Iran meets conditions triggering sanction relief and how successful Iran is in production and marketing operations. EIA expects most of this increase would occur in the second half of 2016. These additional Iranian volumes are expected to put downward pressure on global oil prices in 2016, as Saudi Arabia and the rest of producers in the Organization of the Petroleum Exporting Countries (OPEC) are not expected to make production cuts to accommodate additional Iranian volumes in a well-supplied global oil market.
Lower world oil prices in 2016 likely will result in lower non-OPEC production and slightly higher consumption, largely offsetting the higher Iranian production. Non-OPEC producers are expected to see their output fall as a result of high inventory builds and lower prices. In particular, EIA's outlook for U.S. crude oil production was revised downward by about 400,000 b/d in 2016. Internationally, producers operating in high-cost areas, such as the North Sea and deep offshore in the Americas, are also expected to reduce output in 2016.
However, the biggest declines in production among non-OPEC producers from lower oil prices are likely to occur beyond 2016, reflecting the effect of reduced capital expenditures and investment in conventional development projects with longer payback periods than projects with shorter payback times, such as tight oil drilling. Reductions in capital expenditures are most likely to affect producers in areas outside of the shale plays in the United States.
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WNN - "We met today to confirm the continuing commitment of the European Commission and the Atomic Energy Organisation of Iran towards the implementation of the Joint Comprehensive Plan of Action, and in particular its Annex III which addresses civil nuclear cooperation," Cañete and Ali Akhbar Salehi, president of the AEOI, said in a joint statement on 19 May. "We believe that the continuing implementation of the JCPOA, which was unanimously endorsed by UN Security Council Resolution 2231, is crucial for the development and progress of the region as well as the global peace and security."
BLOOMBERG - Natural gas will probably emerge as the main fossil fuel “winner” as it balances renewables in power generation and is used as a substitute for oil in petrochemicals. Long-term gas demand is set to increase by 15 percent, or by 750 billion cubic meters, compared to business as usual,
WNN - The United States, Canada, and Japan are launching the Nuclear Innovation: Clean Energy (NICE) Future Initiative. This global effort will make sure nuclear has a seat at the table during discussions about innovation and advanced clean energy systems of the future.
AOG - The agreement between ADNOC and ISPRL, which was initiated in January 2017 during a visit to India by a high-ranking UAE delegation, led by His Highness Sheikh Mohamed bin Zayed Al Nahyan, Crown Prince of Abu Dhabi and Deputy Supreme Commander of the UAE Armed Forces, covers the storage of 5.86 million barrels of ADNOC crude oil in underground facilities, at the Karnataka facility. The first shipment, of approximately two million barrels of crude oil, will be followed by further shipments after India’s annual monsoon season.