More oil this year despite Iran ban

London: The world is likely to have more oil, not less, this summer even as Europe imposes sanctions on Iran over its nuclear programme.

Although Europe's refiners will have to pay up for other sources of oil, they should have little difficulty finding them.

Extra crude oil from Saudi Arabia, Iraq and Libya will more than make up for any lost from Iran after the ban is imposed on July 1, and this is likely to be reflected in oil prices.

As much as 1 million barrels per day (bpd) more crude oil could be coming from these three producers alone — perhaps double the volume of Iranian exports lost to the European Union.

"The oil market should be very well-supplied this summer — even better than now," said Samuel Ciszuk, Middle East and North African (Mena) analyst at consultancy KBC Energy Economics.

"Volumes from Iraq should be up significantly, Libya is doing very well and Saudi Arabia will increase production to compensate for some of the lost Iranian barrels."

The International Monetary Fund said on Wednesday sanctions against Teh-ran would imply supply declines of about 1.5 million bpd from the world's fifth largest oil producer, adding global oil prices could rise as much as 30 per cent if Iran halted oil exports as a result of the West's actions.

But senior oil executives, traders and strategists see little chance of significant supply disruption this summer.

Although oil prices have risen on fears that conflict between Iran and the West could disrupt exports from the Middle East, they argue such a clash is extremely unlikely.

And with the European economy in the doldrums and Asian growth slowing, overall oil demand growth is being constrained.

No change

Iran will keep selling its oil, much of it into Asia, where consumers will be only too happy to buy at the right price.

"[Iranian] oil will go somewhere else," Total SA Chief Executive Christophe de Margerie told Reuters in Davos on Wednesday. "Iran may give a discount to make it easier and quicker but nothing will change."

The net result is almost certain to be an overall increase in oil supply, initially into Asia but eventually to all world markets, and downward pressure on prices.

The world's top oil exporter, Saudi Arabia, is pumping just under 10 million bpd and is most likely to make up any shortfall in Iranian supplies. It has promised to meet any extra requests from customers and Gulf industry sources expect a significant increase this summer, maybe of up to 500,000 bpd.

Iraq is aiming to expand its crude oil exports by up to 400,000 bpd by March, after starting up a new Gulf oil terminal this month. This would take its overall oil sales to about 2.5 million bpd, an Iraqi industry source says.

Libya has already pushed up oil exports to around 800,000 bpd this month, says the National Oil Corp.

Crude futures take hit

Expectations of improving supply are already beginning to affect prices, dampening Brent crude oil futures for nearby contracts relative to forward months, tipping the front of the price curve into a so-called contango.

The front-month contract for Brent, now March, traded around $111 per barrel yesterday, and this week it has traded at a small discount to April. Many traders expect the rest of the price curve to move into contango as supplies improve.