U.S. Oil Exports Shouldn't Bother OPEC: Iran Is the Problem

  • Trading house Gunvor sees bigger threat from within OPEC ranks
  • End of export ban seen having minimal effect on market for now

An end to the U.S.’s 40-year ban on oil exports is probably not what OPEC needs right now. Yet a resurgent Iran may present a greater threat as it prepares to dump a million barrels on the market next year.

While OPEC “could have done without” the return of U.S. crude, “probably much more impactful will be whatever comes out of Iran, starting sometime in the second quarter,” said David Fyfe, head of market research and analysis at trading house Gunvor Group Ltd. Researcher IHS Inc. also said the immediate effect of the ban’s repeal would be “relatively minor.”

Iran, once the second-largest producer in the Organization of Petroleum Exporting Countries, plans to boost supply by 500,000 barrels a day within weeks of sanctions being lifted early in 2016, and by 1 million barrels months later. The Persian Gulf nation has staunchly defended its right to restore output even as a global oversupply sends crude below $40 a barrel.

By contrast, the lifting of the U.S. export ban -- which may go to a Congress vote as soon as Thursday -- won’t have a “major volumetric impact” for the time being as U.S. production has declined, Fyfe said. The end of restrictions won’t “materially affect” the global market balance over the next six months, according to the analyst, who’s also the former head of oil-market analysis at the International Energy Agency.

“With U.S. production in short-term decline, the physical pressure to export has diminished,” Fyfe said by phone.

OPEC Strategy

U.S. output has fallen since June as the crude-price collapse squeezes out high-cost drillers, indicating that OPEC’s year-old strategy to keep pumping to defend market share is starting to work. A contraction of the spread between West Texas Intermediate oil and Brent, the global benchmark, also makes significant export volumes unlikely since they’d be comparatively expensive, according to IHS.

“Immediate physical implications are relatively minor given the narrow spread between WTI and Brent,” said Jamie Webster, a Washington-based senior director at IHS Energy.

WTI traded at the smallest discount to Brent in 11 months on Wednesday after the U.S. House and Senate on Tuesday evening reached a deal on tax and spending plans that included an end to the oil-trade limits. The deal has been brokered to help smooth its passage through Congress.

Longer Term

The lifting of the ban may have a greater impact on OPEC in the longer term, especially on member states such as Nigeria that produce similar crudes to the U.S.’s light, sweet varieties.

“The threat is mainly against West African producers who now may see more competition from U.S. oil producers against their customers,” said Torbjorn Kjus, chief oil analyst at DNB Markets. “This is because they are light, sweet crude producers, just like U.S. shale.”

Nigeria has been relying on other markets after its shipments to the U.S. shrank with the jump in American shale-oil production.

Other nations in the 13-member group may also ultimately suffer as U.S. exports add to the glut of crudes in the Atlantic Basin, according to Citigroup Inc.

“Given that the Atlantic Basin light, sweet -- i.e. Brent -- is what everything hangs on to, it takes down everything in the process,” said Seth Kleinman, European head of energy research at Citigroup.

OPEC, which controls about 40 percent of global oil production, has been quick to dismiss any concerns.

“The net effect of export of American oil on the market is zero,” Abdalla El-Badri, secretary-general of the organization, said Tuesday. “This will have no effect on the price because the U.S. still is an importing country.”

The U.S., which imported more than 7 million barrels a day in 2014, surpassed Russia and Saudi Arabia earlier this year to become the world’s biggest producer of oil and gas.

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