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Will Iran’s Crude Oil Production Pressure Crude Oil Prices?

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Iran’s crude oil production 

OPEC (Organization of the Petroleum Exporting Countries) released its Monthly Oil Market Report on September 12, 2016. It estimated that Iran’s crude oil production rose by 22,300 barrels per day to 3.7 MMbpd (million barrels per day) in August 2016—compared to the previous month. Iran’s crude oil production averaged 2.84 MMbpd in 2015. It averaged 3.5 MMbpd in 2Q16. Iran was able to increase production after the US lifted the sanctions on the country.

Read How Rising OPEC Crude Oil Production Is Affecting Oil Market and How Did OPEC’s Crude Oil Production Trend in August 2016? for more on OPEC’s production.

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Iran’s crude oil exports 

A Reuters survey estimated that Iran exported 2.11 MMbpd of crude oil in August 2016—the highest since 2012. Iran’s crude oil exports rose due to a rise in imports from India and Europe. India and Europe imported 600,000 bpd and 630,000 bpd of crude oil from Iran in August 2016.

Iran’s crude oil production strategy 

On September 7, 2016, the National Iranian Oil Company’s director for international affairs reported that Iran is targeting production of 4 MMbpd. This could be achieved by the end of 2016 or early 2017. On September 3, 2016, the Iranian Oil Ministry stated that it would support oil producers’ meeting. The meeting is meant to cap supply after it achieved pre-sanction levels of 4 MMbpd. For more on oil producers’ meeting, read Part 1 of this series. Read Crude Oil Prices Rose before Saudi Arabia and Russia’s Talks, Why There’s Some Pessimism ahead of Oil Producer Meeting, and What Will Happen if the Oil Producer Meeting Succeeds? to learn more.

Impact 

A rise in crude oil production from Iran will have a negative impact on crude oil prices. Lower crude oil prices will have a negative impact on oil producers such as Warren Resources (WRES), Bonanza Creek Energy (BCEI), and Sanchez Energy (SN).

The ups and downs in crude oil prices also impact ETFs and ETNs such as the ProShares UltraShort Bloomberg Crude Oil (SCO), the Fidelity MSCI Energy (FENY), the Direxion Daily Energy Bear 3x (ERY), the VelocityShares 3x Long Crude Oil ETN (UWTI), and the United States Brent Oil ETF (BNO).

In the next part of this series, we’ll take a look at the monthly US crude oil movement by rail.

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