Iran is OPEC’s (Organization of the Petroleum Exporting Countries) key member. It held its parliamentary elections on Friday, February 26, 2016. The moderates group, led Hassan Rouhani, won the elections. President Rouhani reported that his government would nurture growth and prosperity for the country. The election results favor better relations with Western countries. This would contribute to more business opportunities in Iran for international oil and gas companies.
Iran’s crude oil production
The latest survey from Bloomberg suggests that Iran’s crude oil production rose by 140,000 barrels per day to 3 MMbpd (million barrels per day) in February 2016. This was Iran’s highest production level since July 2012. The lifting of Western oil sanctions boosted Iran’s crude oil production. Iran is pumping at record levels to regain the market share that it lost to Saudi Arabia and Iraq due to oil sanctions. To learn more about Saudi Arabia’s production read Did Saudi Arabia Keep Its Word and Freeze Crude Oil Production? and Why OPEC’s Crude Oil Production Fell in February 2016.
Iran and new production deal
The consensus of rising crude oil production from Iran will continue to put pressure on the crude oil market. Iran’s oil minister commented that the recent crude oil production deal wouldn’t allow Iran to scale up production by 1 MMbpd in 2016. So, it was against the historic deal. To learn more, read Why Crude Oil Prices Fell despite the OPEC and Non-OPEC Deal.
Opportunity with Iran
The cost of producing crude oil per barrel in Iran is equal to $12 per barrel. It costs around $9, $36, and $52 per barrel in Saudi Arabia, the US, and the United Kingdom, respectively. It gives international oil companies like BP (BP), Eni (ENI), Repsol, Shell (RDS.A), Statoil (STO), and Total (TOT) an opportunity to enter into a strategic partnership with Iran to extract oil. Iran needs investments to extract oil in the depressed energy market. Iran is providing long-term contracts that lure international oil companies to sustain in the depressed oil market. So, Iran could have a negative impact on the crude oil market in 2016 and 2017.
The roller coaster ride in oil and gas prices impacts ETFs such as the ProShares UltraShort Bloomberg Crude Oil ETF (SCO), the First Trust Energy AlphaDEX Fund (FXN), the Direxion Daily Energy Bull 3x Shares ETF (ERX), and the Vanguard Energy ETF (VDE). Read the next part of this series to learn how mounting debt puts pressure on oil producers.