Kpler: Iran-US negotiations provide potential for 2 million b/d additional oil supply

April 19, 2021

Since the election of President Joe Biden, the US and Iran have remained at a standstill over a mutual return to the Joint Comprehensive Plan of Action, as both sides adopted a “you go first” approach, but discussions between Iranian diplomats and the P4+1 (China, Germany, France, Russia, UK) marked a new start, Kpler said in a report Apr. 8.

While too soon for Iran and the US to speak directly, these are encouraging signs, the commodity intelligence company said. A breakthrough in negotiations seemed impossible weeks ago, but it could happen sooner than later, the report continued, noting Iran-US negotiations could potentially bring 2 million b/d of oil supply back to market if a deal is struck.

Iran’s oil exports, production

Since 2018, Iran’s oil production and exports have been limited by US sanctions. Oil exports averaged just under 350,000 b/d in 2020, likely a 6 decade or more low for the country. However, since falling to a low of 98,000 b/d in May 2020, Iran’s exports have increased, especially since November and the US presidential elections. Oil exports have averaged 636,000 b/d since November and 685,000 b/d in first-quarter 2021, according to Kpler data.

Whether the increase in exports has come from a boost in production or from storage is debatable.

“Indeed, tracking Iranian floating storage has become increasingly tricky although we show a decrease of 9 million bbl in floating storage since early October, which equates to around 50,000 b/d,” Kpler said.

“However, onshore storage has gone up despite higher exports, which points to an increase in production. Onshore oil inventories have remained stable around 57-60 million bbl over the past six months. Storage has even built 2 million bbl since mid-March to reach 60.5 million bbl in the mist of Nowruz (the Iranian New Year), which is typically a high travel, high demand season.”

NIOC ready to boost oil production

On the back of renewed talks between Iran and world powers, the National Iranian Oil Co. is readying itself for more production boosts, Kpler noted.

Thus far, most production cuts were undertaken at large oilfields such as Ahvaz, Marun, and Gachsaran. On the contrary, all fields shared with neighboring countries have been producing at capacity.

To reduce production, NIOC will shut-in wells or decrease well production for a few weeks or months and then put them back online, repeating the method at other fields, the report said.

“This technique, while inflating the opex bill, allows NIOC to better understand reservoir behavior and anticipate how much production can get back online”, Kpler noted. “The biggest uncertainty lingers on heavier reservoirs that have seen production cuts. It is possible that their production may never hit capacity again,” it said.

“We believe production could technically jump by around 2 million b/d (including condensate) in a 6-12 month period if sanctions are lifted. The upside potential could be lower, depending on buyers’ willingness to lift Iranian cargoes,” Kpler said.