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Iran prepares to return to the oil market as the US moves forward

(Bloomberg) – Iran prepares to boost global oil sales as talks to lift US sanctions show signs of progress. But even if an agreement is reached, the inflow of additional crude into the market can be gradual. The state-controlled National Iranian Oil Co. has prepared oil fields – and customer relationships – to boost exports if a deal is struck, officials said. According to the most optimistic estimates, the country could return to production of nearly 4 million barrels a day in just three months before the sanctions. It could also tap the oil from a flotilla that is hoarded in storage. But there are many hurdles to be overcome. Any deal must completely dismantle the range of US trade, shipping and insurance barriers that Iranian companies are involved in. Even then, buyers may still hesitate, according to Mohammad Ali Khatibi, a former NIOC official: “Our return may be more gradual than quick and sudden – it cannot happen overnight,” said Khatibi, also a former OPEC envoy of Iran said in an interview. This is partly due to the fact that the coronavirus pandemic “has put a significant drag on demand,” he said. The pace of the Iranian comeback could prove critical to the oil market. While fuel consumption picks up again due to the redistribution of vaccines by governments and the reopening of major economies, it remains weighed down by lockdowns and new virus outbreaks. Additional Iranian shipments would weigh on other members of OPEC +, which has been struggling for more than a year to clean up a flood that has built up as the pandemic spread. and Iranian diplomats currently negotiating through intermediary governments in Vienna have signaled that an agreement is within reach. If successful, the negotiations could reactivate an international nuclear deal from 2015, from which Donald Trump withdrew the US three years later. This would require Iran to re-accept borders on its nuclear activities in order to lift a series of tough sanctions imposed by the former president. Tehran has already taken advantage of a less hostile climate since President Joe Biden came to power in January. It revives petroleum sales and sends more crude to encouraged Chinese buyers. Iranian production has soared nearly 20% to 2.4 million barrels a day this year, according to Bloomberg data, although most of the oil is still used domestically. “Even if the sanctions are not lifted, depending on their ability to sell oil in the gray market, they will continue to increase their production,” said Sara Vakhshouri, president of consulting firm SVB Energy International LLC in Washington. WellsEngineers maintenance at NIOC has switched crude oil production between different fields to maintain sufficient pressure on the deposits that asked not to be identified. The procedure is critical to maintaining output levels. Gas injections in older oil fields in the south of the country play a similar role, said SVB’s Vakhshouri. If there is a deal with the US, the Islamic Republic could increase production to nearly 4 million barrels a day in three to six months to Iman Nasseri, Middle East general manager at FGE, who has decades of experience in the region and worked in Iran. Others expect a slower pace. It would take 12 to 15 months after the sanctions were lifted to increase production to 3.8 million barrels a day, Reza Padidar, head of the Tehran’s Chamber of Commerce’s energy commission, said in an interview. Some work required to restore capacity to fields, such as removing and servicing clogged borehole pumps, can take up to a month per well, he said. China Inventories Even before Iran pumps more oil, it could increase sales. FGE’s Nasseri estimates the country has stored around 60 million barrels of crude oil. About 11 million barrels of it and another 10 million barrels of a light oil called condensate are stored in China, where it can be sold to refineries, according to FGE.NIOC representatives. They state that they have had contacts with customers who are ready to resume purchases with regular contracts. A restart for Iran poses complications for the organization of the oil-exporting countries and their allies. Led by Saudi Arabia and Russia, the 23-member coalition is gradually restoring oil production that it cut last year when the coronavirus crisis weighed on demand. His cautious approach to increasing supply has helped Brent crude oil prices rise 33% to nearly $ 69 a barrel this year. The Saudi energy minister, Prince Abdulaziz bin Salman, has signaled that, as in the past, the alliance will give Iran space to boost production. It’s unclear if others, including countries like Russia and the United Arab Emirates looking to revive manufacturing, would be so accommodating. But they may not have to be. Difficult talks With Tehran and Washington, who are still haggling over the best terms, a deal can take much longer. If the recent clashes between Persian and Iranian naval vessels in the Persian Gulf escalate, it could come to a complete standstill. Talks could also be affected by next month’s elections in Iran, after which President Hassan Rouhani resigns. While Supreme Leader Ayatollah Ali Khamenei has approved the negotiations so far, Rouhani’s successor could take a tougher stance on the USE, even if the sanctions are lifted, Iran faces other problems. Many refiners sign annual contracts at the beginning of the year, leaving Tehran with little room for the time being to conclude its own long-term supply contracts, said Khatibi: “Our greatest concern is the restrictions placed on our customers and their fear of buying oil from Iran.” , he said. “As we get closer to the end of the year, there will be more fixed-term contracts.” Trump’s sanctions “choked” Iran’s relations with traditional customers like India, China, South Korea, Japan and Turkey to a greater extent than previous trade restrictions, said Padidar of the Tehran Chamber of Commerce. For Wall Street banks like JPMorgan Chase & Co. and trading houses like Vitol Group, the oil market is recovering fast enough to comfortably raise additional Iranian barrels. The pent-up demand for travel should boost consumption in the second half of the year: “There is room for oil from Iran to come back,” said Mike Muller, head of Asia at Vitol Group, the world’s largest independent oil trader. “It won’t come back in a single bang.” (Updates from fourth paragraph with details on analyst and oil prices.) For more articles like this, visit bloomberg.com. Sign up now for the most trusted business news source. © 2021 Bloomberg LP