Iran crude oil production
A Reuters survey reported that Iran’s crude oil production rose by 15,000 barrels per day to 3.55 MMbpd (million barrels per day) in May 2016—compared to April 2016. JBC Energy reported that Iran’s crude oil production rose to 3.38 MMbpd in May 2016—compared to 3.35 MMbpd in April 2016. Iran doubled its exports since early 2016. It exported ~2.3 MMbpd of crude oil in May 2016. Some traders think that it could reach as high as 2.5 MMbpd—the same as the pre-sanctions levels. Iranian oil is shipped mainly to China, India, and Japan.
Iran’s crude oil production strategy
Iran’s oil minister, Bijan Zanganeh, stated that Iran would target production of 4 MMbpd. It won’t support any strategy to freeze the output. Citigroup estimates that Iran ramped up faster than expected. So, it could offset the production decline due to the supply outage in Libya. For more on the supply outage, read Part 6 of this series.
Reuters reported that loading data showed that 26 foreign tankers with a capacity more than 25 million barrels are shipping Iranian oil. This shows the increase in Iranian crude oil exports. Iran was able to ramp up exports and production due to the sanctions being lifted in January 2016.
Iran’s oilfield tenders
Iran’s government official reported that Iran’s inviting international companies to bid for oilfield exploration and development rights in Iran in June 2016. The bids will start on June 21 and run for a month. Iran identified 70 oil and gas fields for exploration and development. Iran’s Oil Ministry reported that Iran needs $185 billion in investment to upgrade its oil, gas, and petrochemicals industries by 2020.
Impact on energy companies and ETFs
The rise in crude oil production from Iran will have a negative impact on crude oil prices. Multiyear low crude oil prices impact oil and gas producers like the National Iranian Oil Company, Energy XXI (EXXI), Triangle Petroleum (TPLM), Comstock Resources (CRK), and Denbury Resources (DNR).
The uncertainty in crude oil prices impacts ETFs and ETNs including the PowerShares DWA Energy Momentum (PXI), the United States Brent Oil (BNO), and the ProShares UltraShort Bloomberg Crude Oil ETF (SCO).
In the next part, we’ll discuss crude oil price forecasts.