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Abu Dhabi: Saudi Arabia, the UAE and Kuwait — with a collective spare capacity of more than 2 million barrels per day — are likely to plug the supply gap and compensate for the loss of Iranian exports, analysts said.
In a major decision on Monday, the US administration decided to end Iran sanction waivers granted to eight countries that import oil from the Islamic Republic including China, India, South Korea and Japan, among others. The decision will come into effect from May 2.
Oil prices jumped by 3 per cent following the decision with global benchmark Brent trading above $74 (Dh271.7) per barrel on Tuesday and is expected to go further as oil markets tighten due to loss of Iranian oil as well as tensions in Libya and other countries in the Middle East.
“Opec surely has enough capacity to replace the lost Iranian oil,” Dr Saade Chami, Group Chief Economist at National Bank of Kuwait, told Gulf News, adding Saudi Arabia alone could ramp up its production by 1 million barrels per day in a very short time but it may be reluctant to do it alone.
“Minister Falah [Saudi oil minister] announced that Saudi Arabia is willing to step in and re-balance the market but in coordination with other Opec members. UAE can also increase its production by up to 300 to 500 thousand barrels a day, and Kuwait could also raise production albeit by smaller amounts.”
He said Iran exported 1.3 million barrels per day in recent months and in theory this could be out of the market when the waivers end on May 2. However, in practice, Iran is still expected to continue selling oil in the market through third parties.
“Iran will always find a way to put a few hundred thousand barrels a day on the market indirectly through third parties, and some countries could still import Iranian oil in defiance of the US sanctions. How much will this be is uncertain but roughly about half a million barrels a day could still find their way into the market,” Dr Chami added.
On the question of more US oil entering the market, he said the US could increase its production in the medium term but this may not be possible in the shorter term to fill the entire gap.
“But this may not be needed for the time being as some Opec members have expressed willingness to make up for the drop in supply.”
Edward Bell, commodity analyst from Emirates NBD said next Opec+ meetings will focus on when and how much production will need to increase in order to prevent prices rising to extreme levels.
Opec member countries and Russia will gather in Jeddah on May 19 as part of the joint ministerial monitoring committee meeting to take stock of the oil markets and analyse compliance to output cuts agreement. The group will also meet in Vienna on June 25.
Saudi Arabia and the UAE are ramping up their investments in the energy sector to increase production to meet global oil demand. The UAE is targeting a production of 4 million barrels per day by the end of 2020 and 5 million barrels per day by 2030.
