Iran export surge unlikely before 2016: analysts

OREANDA-NEWS. Little additional Iranian oil will reach world markets before 2016 despite a political agreement between Iran and six global powers that would swap restrictions on Tehran's nuclear program for sanctions relief, analysts said today.

US bank Morgan Stanley and UK bank Barclays issued separate reports that argue against expectations of an imminent surgein exports from Opec's third-biggest producer.

Iran and the P5 + 1 – the US, UK, France, Russia, China and Germany - reached a political framework on 2 April that the parties hope will clear a path for a final accord by 30 June. During the nuclear negotiations, Iran's exports have been limited to about 1.1mn b/d, not including condensate, down from about 2.5mn b/d in 2012. Iran's oil output was 2.9mn b/d in February, up from 2.85mn b/d in January.

Oil minister Bijan Namdar Zanganeh has insisted that Iran can swiftly lift exports by 1mn b/d if US and EU sanctions are lifted. And within two months, Iran could restore production to 3.8mn b/d, Zanganeh told Argus in November.

Morgan Stanley said that "even if a final deal is reached, we do not expect any physical market impact before 2016."

Barclays anticipates 200,000-300,000 b/d of "slippage" is possible before 30 June, now that the parameters of an agreement are in place. "If the agreement proceeds as planned, we would expect the market to price in that reality beforehand," Barclays said.

Some of that will come from Iran's floating storage offshore. At the same time, Indian refiners, which scaled back their Iranian imports ahead of President Barack Obama's visit to India in January, are expected to return to previous levels. "Our contention is that the government will not slap the refiners' hands if they revert back to their prior levels at this point," Barclays analyst Michael Cohen said.

Barclays does not look for a return of 1mn b/d of Iranian oil exports for at least a year. And it said an increase in Iranian production of 500,000 b/d by the end of the first quarter 2016 would only come under a "blue sky scenario" that assumes no delays in implementation.

Morgan Stanley noted that Iran likely will have trouble finding buyers for its oil "given that many customers have moved on to other supply sources, namely in the EU." But if Iran were able to restore production to pre-sanctions levels, that extra supply could postpone an expected rebound in oil prices for six months to a year.

Morgan Stanley and Barclays follow ClearView Energy Partners, which on 2 April said that the high verification standards the P5 + 1 will require, coupled with congressional suspicion of a deal, "could back-load the resumption of crude sales into 2016, perhaps well into 2016."

The sanctions provisions were some of the vaguest provisions of the deal outlined last week.

US secretary of state John Kerry said that before any sanctions would be lifted, Iran would have to dismantle some of its centrifuges and the infrastructure associated with those centrifuges, work that could take four months to a year. And after UN atomic energy watchdog the IAEA certifies that work has been completed "there would begin the phasing of the sanctions."

But the exact timing of sanctions relief "remains one of those issues that is going to be negotiated over the course of the next three months," Kerry said.