As November draws to a close, there are two major events that could profoundly
change the oil markets.
With the clock ticking, the 5 permanent members of the UN Security Council
plus Germany (P5 plus 1) are negotiating down to the wire with Iran over its
nuclear program. The two sides have made substantial progress, but some difficult
issues remain
unresolved ahead of the November 24 deadline.
"We're very keen to try to get to a deal, but not a deal at any price," U.K.
Foreign Secretary Philip Hammond said on November 17. "There will have
to be very significant further movement by the Iranians if we're going to
be able to get to a deal."
Both sides have approached negotiations with seriousness and with the intention
to actually resolve their differences, according
to officials involved in the process. Iran has signaled
its willingness to accept international inspections of its nuclear program
and the possibility of receiving enriched uranium from abroad. In exchange
the U.S. has suggested Iran could maintain some domestic ability to enrich
uranium.
Outstanding issues center on the pace at which the U.S. would lift sanctions
as well as the exact details of Iran's enrichment capability. With only days
left until a deadline, a deal is highly uncertain. Over at Quartz,
Steve LeVine writes that the stakes are high, with either a diplomatic breakthrough
or a major collapse in negotiations as the two most likely outcomes.
He says a deal is more likely than not due to the enormous financial pressure
Iran is experiencing because of falling oil prices. With prices down more than
30 percent from just a few months ago, and Iran needing somewhere around $135
per barrel for its budget to breakeven, it would be the biggest beneficiary
of a diplomatic accord with the west.
Not only that, but the Iranian government has also raised expectations of
a deal. It has received
foreign business delegations, highlighting the investment opportunities
in Iran once sanctions are removed. There is potential for carmakers, mining
companies, and financial institutions to expand into Iran if it opens up. BP
and the French oil company Total recently
said that they would be interested in going back into Iran if sanctions
are lifted and the Iranian government offers favorable terms.
Earlier this year, Iranian President Hassan Rouhani promised that the sanctions
regime would soon be lifted. "With your support, this government has taken
the first steps towards the lifting of the brutal sanctions ... We will witness
the sanctions shattering in the coming months," Rouhani told a crowd in April,
according to Reuters.
Talk of the pending economic benefits of a deal could make it difficult for
Iran to back off.
And sanctions have taken their toll. Iran's oil exports have more than halved from
their pre-sanctions level of about 2.5 million barrels per day. As a result,
Iran's GDP
fell by 5.8 percent in 2012, the year that tough western sanctions took
effect.
Hardliners in both countries could work to prevent a deal. But in Iran, even
among the most conservative, there may not be aggressive opposition to a deal
in principle, reports
The Economist.
While far from certain, a deal could see the return of several million barrels
per day of Iranian oil production, although at a gradual pace.
While nuclear negotiations reach the finish line, a second event is set to
take place - OPEC's meeting in Vienna on November 27 to decide its oil production
target. There has been much speculation, but little hint at what the cartel
will do. There has been a flurry of diplomatic activity behind the scenes in
the last few weeks as OPEC members plead their case with Saudi Arabia to cut
back production. Libya's Prime Minister visited
Riyadh on November 13, arriving just as Iraq's President departed.
Saudi Arabia has thus far showed no willingness to cut production, with officials
earlier this month suggesting they would only act if oil prices dropped to
around $70 per barrel. At the time, OPEC officials thought that was unlikely,
but with Brent crude dropping below
$80 on November 17 on news that Japan fell into recession, pressure is mounting
on Riyadh to act.
There is a high degree of uncertainty over how the Iranian negotiations and
the OPEC meeting will play out, but the end of November will be hugely important
for energy markets.
Source: http://oilprice.com/Energy/Crude-Oil/Iran-Neg...il-Markets.html
By Nick Cunningham of target="_blank" Oilprice.com
