President Trump and Iran
Iran is OPEC’s third-largest oil producer. On May 8, President Trump said that the US is exiting the Iran nuclear pact. On June 26, President Trump pushed Iran’s allies to stop importing oil from Iran by November 4. The faster-than-expected drop in supplies from the global oil market due to sanctions on Iran and unexpected supply outages from Libya and Canada have been helping oil prices.
Brent oil futures rose 0.6% to $77.16 per barrel on July 3. August WTI oil futures contracts rose 0.3% to $74.14 per barrel on July 3. The prices are near multiyear highs.
The Energy Select Sector SPDR ETF (XLE) rose ~0.63% on July 3. The companies in XLE produce crude oil and natural gas and provide other energy-related services. Marathon Oil (MRO), Apache (APA), Noble Energy (NBL), and Helmerich & Payne (HP) rose 3%, 2.5%, 2%, and 1.95%, respectively, on July 3. These stocks were the top percentage gainers in XLE’s holdings on the same day. These stocks account for 4.2% of XLE’s holdings.
Iran’s crude oil production and exports
According to Reuters, Iran’s crude oil production decreased by 50,000 bpd (barrels per day) to 3.75 MMbpd (million barrels per day) in June—compared to the previous month.
However, Iran’s production hit 3.85 MMbpd in October 2017, which was the highest level in almost nine years. The production increased after the US lifted sanctions on the country in January 2016. Brent and WTI oil prices have risen ~110% and ~102% since January 1, 2016.
Iran exported ~2.5 MMbpd of crude oil in June. However, exports hit 2.7 MMbpd in May, which was the highest level since the sanctions were lifted in January 2016.
Iran and OPEC’s output cut deal
Iran supported the current self-imposed supply cuts until December. OPEC producers allowed Iran to increase its oil output slightly in order to recover market share lost while the country was under US sanctions. Iran was allowed to cap its oil production at ~3,800,000 bpd.
On June 22, OPEC and Russia agreed to increase the crude oil production. OPEC decided to bring the production cut compliance back to 100% from higher levels due to unexpected supply outages from member countries.
Iran’s crude oil production plans
Iran’s crude oil production averaged 3.8 MMbpd in 2017. The country targets to increase its oil production to 4.7 MMbpd by 2021. Iran is looking for private oil companies to export crude oil, which could limit the impact of US sanctions.
However, US sanctions on Iran could curb the country’s oil production and exports. Iran’s crude oil supplies could drop by 300,000 bpd to 1 MMbpd depending on how many countries participate in the sanctions. Lower oil supply from Iran could help crude oil prices and push them higher.
Next, we’ll discuss Saudi Arabia’s crude oil production.