Good News For Iran

| About: The United (USO)
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Summary

Iran is moving closer to the West.

A look at the results of OPEC agreements for Iran.

We see sustainable growth in oil exports.

We offer forecasts for 2017.

Iran is the fourth-largest economy in the Muslim world and the second-largest in Western Asia. This country is deeply religious, but highly developed in technical and economic terms. Iran is located in a strategically important region of Eurasia and has large reserves of oil. It is a member of OPEC and one of the major players in the global oil market.

Currently, internal and external political situation is favorable for Iran's oil. On the one hand, the liberal government is in power. Hassan Rouhani, who was elected in June 2013 as president, proclaimed the path of modernization and rapprochement with the West. As a result, the sanctions imposed on Iran because of its nuclear program were dropped early in 2016. On the other hand, there is the OPEC policy aimed at reducing oil production and increasing oil prices. On Nov. 30 at the OPEC meeting in Vienna, an agreement was reached. There is supposed to be a reduction in oil production from Jan. 1, 2017, by 1.2 mbbl/d to 32.5 mbbl/d. Eleven OPEC countries -- Algeria, Angola, Ecuador, Gabon, Iran, Iraq, Kuwait, Qatar, Saudi Arabia, the United Arab Emirates and Venezuela -- are supposed to reduce total oil production to 30.970 mbbl/d to 29.804 mbbl/d, that is 1,166 mbbl/d.

At the same time, 10 countries in total will reduce production by 1.256 mbbl/d. But some countries received special conditions. In particular, Iran, after many long discussions, finally achieved the possibility of increasing the level of production before the sanctions. It amounted to 3.975 mbbl/d. However, on average, during the first half 2017 that figure should be no more than 3.797 mbbl/d; that is 90 million barrels higher than the current level. Thus, all this contributes to the stability and prosperity of the Iranian oil market.

We should point out that the situation with the development of the Iranian economy can be complicated due to the election of Donald Trump as the next U.S. president, as he is in favor of the resumption of sanctions against Iran. If this happens, the production of Iranian oil and the economy will fall again.

But let's turn to the statistics that we have today. In the graph below, the yellow line shows the cumulative oil exports and the red line demonstrates the seven-day trend. So, we see a stable growth of oil export from September to November. There was rapid growth of oil exports at the end of October, and then slowed down a bit after Nov. 10. And again there is a sharp rise from Nov. 16. Thus, the tanker tracking data indicates ever-growing Iranian oil exports.

Iran oil export cumulative chart

Source: Tanker tracking data, author's calculations.

If we look at Iran's exports as shown in the graph below, we can see that it is not well-diversified. But the word "Other" includes a significant number of countries. We see UAE here mainly because of its floating storage. The arrival point in Egypt usually implies that tankers are supposed to pass through the Suez Canal.

Iran oil export pie chart

Source: Tanker tracking data, author's calculations.

In conclusion, we can say that the Iranian oil market is developing. The situation might change significantly if the international community supports the U.S. initiative regarding the resumption of sanctions. But there is no obvious precondition for this at the moment.

If the situation remains unchanged, the forecast for Iranian oil in 2017 can be considered favorable. On the other hand, we must not forget Trump's intention to resume sanctions. Due to an agreement with OPEC, oil production in Iran will continue to maintain its growth. Given the background of rising world oil prices, this is a positive for the economic situation in the country, providing favorable conditions for foreign investment.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: The material presented in this article is provided for informational purposes only and is based upon information that is considered to be reliable.