With Washington poised to curtail Iran’s oil exports, OPEC heavyweight Saudi Arabia and its partners stand ready to ramp up supplies even as market conditions remain uncertain, analysts say.
The renewal of sanctions on the Islamic republic comes at a time of major supply disruptions in several producer nations and as US President Donald Trump aims to prevent an oil price hike.
Analysts expect that Iran’s oil exports, which reach around 2.5 million barrels per day in normal times, to plunge by one million to two million bpd when sanctions take effect on November 5.
Outages in Libya, Venezuela, Nigeria, Mexico, Angola and others forced Opec and non-Opec producers in June to abandon an agreed cut in output and boost supplies. “We are entering a very crucial period for the oil market,” the International Energy Agency (IEA) said in a September report. “Things are tightening up.”
Saudi Arabia is the only producer with significant spare capacity of around two million bpd that can be tapped into to compensate for the loss of Iranian supplies.
Saudi Energy Minister Khalid Al Falih said his country, which raised output by 700,000 bpd to 10.7 million bpd in October, was prepared to further bump up production to 12 million bpd.
“We have sanctions on Iran and nobody has a clue what Iranian exports will be,” he told the Russian news agency Tass last week.
In addition, there are potential declines in Libya, Nigeria, Mexico and Venezuela, he said, also pointing to uncertainty over US shale oil production.
Al Falih said the kingdom could turn to its huge strategic reserves of around 300 billion barrels to meet global demand.
OPEC is constrained by low spare capacity in a tight market under threat from unplanned outages, low investment and unpredictable geopolitical unrest.
Iranian officials are betting on the unstable market conditions to beat U.S. sanctions.
“Mr. Trump both tries to decrease Iran’s oil exports significantly and also wants prices not to go up. These two can’t happen together,” Iranian Oil Minister Bijan Namdar Zanganeh said in late September.
Tehran sold oil to private buyers through its energy exchange for the first time on Oct. 28, as part of efforts to counter the imminent return of sanctions.
Some estimates show Iran’s crude exports have already dropped by a third since May, with even companies from traditional clients China and India abandoning purchases.
Hajji said he believes the market is well-supplied and that Saudi Arabia does not need to exceed production of 11 million bpd.
“They (Saudi) have 12 million bpd capacity, but there is no need for Saudi Arabia to use all its spare capacity,” he said.
“People forget that demand declines in the first quarter relative to the fourth quarter, and the IEA expects a 1 million bpd decline,” Hajji said.