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Iran negotiations, OPEC meeting loom for oil markets

by Nick Cunningham of Oilprice.com

As November draws to a close, there are two major events that could profoundly change the oil markets. With the clock ticking, the 5 permanent members of the UN Security Council plus Germany (P5 plus 1) are negotiating down to the wire with Iran over its nuclear program. The two sides have made substantial progress, but some difficult issues remain unresolved ahead of the November 24 deadline.

“We’re very keen to try to get to a deal, but not a deal at any price,” UK Foreign Secretary Philip Hammond said on November 17. “There will have to be very significant further movement by the Iranians if we’re going to be able to get to a deal.”

Both sides have approached negotiations with seriousness and with the intention to actually resolve their differences, according to officials involved in the process. Iran has signaled its willingness to accept international inspections of its nuclear program and the possibility of receiving enriched uranium from abroad. In exchange the US has suggested Iran could maintain some domestic ability to enrich uranium.

Outstanding issues center on the pace at which the US would lift sanctions as well as the exact details of Iran’s enrichment capability. With only days left until a deadline, a deal is highly uncertain. Over at Quartz, Steve LeVine writes that the stakes are high, with either a diplomatic breakthrough or a major collapse in negotiations as the two most likely outcomes.

He says a deal is more likely than not due to the enormous financial pressure Iran is experiencing because of falling oil prices. With prices down more than 30 percent from just a few months ago, and Iran needing somewhere around $135 per barrel for its budget to breakeven, it would be the biggest beneficiary of a diplomatic accord with the west.

Not only that, but the Iranian government has also raised expectations of a deal. It has received foreign business delegations, highlighting the investment opportunities in Iran once sanctions are removed. There is potential for carmakers, mining companies, and financial institutions to expand into Iran if it opens up. BP and the French oil company Total recently said that they would be interested in going back into Iran if sanctions are lifted and the Iranian government offers favorable terms.

Earlier this year, Iranian President Hassan Rouhani promised that the sanctions regime would soon be lifted. “With your support, this government has taken the first steps towards the lifting of the brutal sanctions ... We will witness the sanctions shattering in the coming months,” Rouhani told a crowd in April, according to Reuters. Talk of the pending economic benefits of a deal could make it difficult for Iran to back off.

And sanctions have taken their toll. Iran’s oil exports have more than halved from their pre-sanctions level of about 2.5 million barrels per day. As a result, Iran’s GDP fell by 5.8 percent in 2012, the year that tough western sanctions took effect.

Hardliners in both countries could work to prevent a deal. But in Iran, even among the most conservative, there may not be aggressive opposition to a deal in principle, reports The Economist.

While far from certain, a deal could see the return of several million barrels per day of Iranian oil production, although at a gradual pace.

While nuclear negotiations reach the finish line, a second event is set to take place—OPEC’s meeting in Vienna on November 27 to decide its oil production target. There has been much speculation, but little hint at what the cartel will do. There has been a flurry of diplomatic activity behind the scenes in the last few weeks as OPEC members plead their case with Saudi Arabia to cut back production. Libya’s Prime Minister visited Riyadh on November 13, arriving just as Iraq’s President departed.

Saudi Arabia has thus far showed no willingness to cut production, with officials earlier this month suggesting they would only act if oil prices dropped to around $70 per barrel. At the time, OPEC officials thought that was unlikely, but with Brent crude dropping below $80 on November 17 on news that Japan fell into recession, pressure is mounting on Riyadh to act.

There is a high degree of uncertainty over how the Iranian negotiations and the OPEC meeting will play out, but the end of November will be hugely important for energy markets.

Source: http://oilprice.com/Energy/Crude-Oil/Iran-Negotiations-OPEC-Meeting-Loom-For-Oil-Markets.html

Comments

Jer

OPEC should increase production. NA producers will always blink first - better $65 oil for 3 months followed by $90 for a year and then up, rather than $75 for a year as NA producers try to hedge and diversify and batten down the hatches. OPEC needs to not only pause NA producers but crush them into more expensive revamp and shut-down procedures. Also, it may be a warm winter (despite early storms) reducing demand. Go for total victory or risk increased production, set-up, and investment in areas throughout and far beyond the US.

That being said, my personal feelings are to have cheap gas, ubiquitous energy until we transform our economy, and OPEC disbanded and neutered - which would mean OPEC to cut production to avoid that.

Brotherkenny4

OPEC will need to get gasoline prices down to $1/gal to beat down the real threat. I know the NA producers of oil would have you think it is all them, that have driven down price, but the NA producer have at best 20 years of production. No, long term the real threat is EVs and by 2025 batteries will cost $150/kWh and EVs will cost less than an ICE car with cost of fuel at 1/4 of gasoline.

ToppaTom

So, Jer;
You want to crush the hardworking oil industry - but only if and when you are not inconvenienced.

You do realize, I hope, that fracking and the oil industry triggered the oil glut and forced Iran to negotiate.

And BK4,
Yes, NA producers may have at best 20 years of production but the price has been driven down NOW – you are off by 20 years.

And at the rate it is going, and using your same calculations, batteries will cost $150/kWh by 2045.

Jer

Ok ToppaTom, let's argue for no good reason…
To clarify my poorly worded statement: …"That being said, my personal feelings are to have cheap gas…" - Which means to have the lowest cost of oil per barrel, coupled with a competitive and low cost production and distribution system. Which means finding that sweet spot where NA and other relatively high price producers can all simultaneously flood the market with oil with their low price and utterly dysfunctional OPEC competitors - I would say that is $75-ish (Texas), i guess. That is my personal feelings - that will likely lead us to $2.50 gas. I am, in general, fine with the fracking craze that has swept and will continue to sweep non-traditional oil areas. Ubiquitous energy is the most important thing - this is what drives innovation and technology more than bright minds, VC money, and endless battery, fuel-cell, and bio-fuel labs - that is manufacturing and development and roll-out capacity (i.e. low energy costs). A funny irony, that increasing fossil fuel supply will likely speed their change-over to battery and hydrogen (maybe) economy faster and in a more equitable and far-reaching way. The most interesting question ofc ourse, is what price of oil maximizes the world economy -oil profit benefits played against reduced production due to high energy costs and subsidies - i haven't seen that spelled out.

My first paragraph was meant to say what I would do if I was on the side of OPEC, with the intention of maximizing their profits and revenue - of course, it is what I am utterly disinterested in (directly anyway - it may happen coincidentally with other upswings in production.. who knows). I would never downplay the immense benefit to employment and economy that fracking has provided. All is fine in the world - except for this pile of winter that has dumped on me this past 5 days.

ToppaTom

Fair enough Jer.
I thought that was what you meant at first, but then read too much into it.

SJC

Historically OPEC cuts production, to reduce supply and increase prices. Energy security means we have energy from sources that are secure. We could get 1/3 of our transportation fuels from biomass, coal and natural gas, that would reduce OPEC's pricing power.

Carter created the Synthetic Fuels Corporation then Reagan stopped it. Arguably oil at $14 per barrel means it would not have been profitable, if you exclude "externalities". Once you factor in environment, climate change, wars and the uncertainty of less energy security, it is profitable.

gorr

I think that the price of the barrel will continu to fall because there is no ends, nobody want to cut production and every producer need to sell it to somebody. Also there is biofuel, mpg increases from cars and trucks , hydrogen, e-gas, batteries.

Unfortunatly suvs sales are on the rise cancelling progress been made. Consumers are really stupid, it's time to benefit from lower prices and keep it going this way. I won't increase my consumption as I know I have to keep the benefit and I can live with a small car. Some consumers seam to be brainwash by the consumption cartel and are spending all of their money on gas, jewellery, patato chips, cable tv, gold, etc

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