$OIL, $USO, $UGA
The negotiations over Iran’s nuclear program was completed, an accord has been signed and approved by the UN, it awaits the imprimatur of the US Senate due in late September to go into full effect triggering the lifting of the Western sanctions.
Iran holds the world’s 4th largest Crude Oil reserves, largest largest Nat Gas reserves, and a string of refineries, so news affecting Iran’s place in the international energy system affects the global energy markets. On the news of the tentative deal last November Brent Crude stood at 108.05 Friday it closed at 48.61 bbl.
The deal in essence, allows Iran to maintain, but not increase, the size of its centrifuge fleet and to retain its stockpile of low-enriched Uranium (3.5-5%).
In return, Iran must dilute or convert its stockpile of highly enriched Uranium (20%), install monitoring cameras in its nuclear facilities, allow unfettered access to IAEA inspectors, and suspend construction of its heavy water reactor, which would have been capable of producing Plutonium.
Iran maintains its current level of Crude Oil sales, thus putting the brakes on the US pressure to cut deep into Iranian Crude Oil exports. This provided relief to importers of Iranian Crude that were planning to reduce import volumes. This means that Iranian Crude Oil exports rise to 1.2-M BPD from about 750-K BPD.
It is estimated that sanctions have cost Iran approximately $80-B, almost 15% of annual Iranian GDP.
The estimate is that there is $150-B+ trapped in these accounts, with more flow into these accounts as the months progress. As part of the deal, Iran will be allowed to repatriate the sequestered Oil money.
Less obvious but equally important is the EU’s decision to lift Shipping and Crude Oil insurance sanctions.
The removal of the shipping sanctions opens the ability to insure Crude Oil cargoes facilitating sales to destination markets, particularly India and Japan.
FACTS Global Energy consultancy estimates that this easing of insurance sanctions could lead to an immediate export increase of 800,000 BPD.
Now there is the energy development I nave been keeping track since last Spring. It is the reason Saudi Arabia is depressing Crude Oil prices.
Before the Y 1979 revolution at the hands of a bumbling US government in the hands of both Presidents Ford and Carter, and the initiation of various Western sanctions, Iran was the 2nd largest Crude Oil producer in OPEC, exporting as much as 6-M BPD.
The clear effect of the sanctions has been the lack of international capital and technical expertise available to the Iranian Oil industry and Iran per se. Its fields are in desperate need of investment and, even if sanctions were completely lifted tomorrow, it would take a few years for Iran to ramp its production back up to pre-revolution marks. But, the upgrading will happen, and the refineries will be renewed as well, as major industry companies are in late stage plans to re-enter and participate in the re-opening of Iran’s businesses.
Crude Oil prices have taken a deep dive and I expect them to go back to Y 1998 marks in the months ahead, putting them at about 20 bbl adjusted for inflation. The effect of this fall will play havoc on the US producers and many other high-tech, high-cost energy producers worldwide. Thus leaving OPEC and particularly Saudi Arabia and Iran in control of the world’s energy.
There will be billions lost and billions made, depending on what side of the market one is on.