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The EU’s embargo on Iranian oil exports will add upward pressure to oil prices, Opec’s secretary general said yesterday, even though there is no shortage of oil on the market.
Abdullah al-Badri also said he was not concerned about too much oil in the market, even though the Organisation of the Petroleum Exporting Countries is pumping about 600,000 barrels per day (bpd) more than its new target of 30mn bpd.
The European Union has raised pressure on Iran, Opec’s second-largest producer, over its nuclear programme by banning Iranian oil from July 1. Tehran has said it may cut off supplies to some unspecified countries.
“This will increase volatility in the market, there is no doubt about it,” Badri told Reuters on the sidelines of a Chatham House energy conference in London. “For sure, there will be upward pressure for a certain period of time.”
“The embargo really is not the best tool to talk to any country,” he added, asked whether he considered the EU’s move unwelcome. “Dialogue is the only way that we can solve any problem, rather than the threat here and there.”
“$100 is a suitable price for producers and consumers alike,” Badri said. “Under the normal circumstances, this is how the market will behave.”
Opec, at its last meeting in December, adopted a target for its 12 members to supply 30mn barrels per day. This settled a six-month-old argument within Opec over extra oil Saudi Arabia and other Gulf Arab countries had pumped to meet a shotfall in Libyan supply last year.
Saudi Arabia has yet to cut back on supplies, Libyan production is recovering and, on Opec’s figures, the group is pumping 30.6mn bpd. Badri said this was not leading to oversupply as output would vary month to month.
“I am not concerned about too much oil. When we said 30mn barrels per day, it is the average for the year. Sometimes you produce 30.6, the next time you produce 30.1, then 30.”
The market at present is in good condition, Badri said, even as the tension over Iran threatens to ruin hopes for no repeat of the turmoil last year when war in Opec member Libya disrupted its output.
“There is no shortage anywhere in the world. I really feel comfortable. Starting 2012 with this Opec decision, I was very pleased,” he said.
“However, now we have a different ball game. It has not affected the market yet, but this risk premium is there.
Yesterday, oil prices dipped to near $111 a barrel as fears over an immediate cessation of Iranian crude exports to Europe eased, and markets awaited a deal on Greek debt.
Brent crude futures were down 35¢ to $111.11 a barrel by 1455 GMT and US crude was down 83¢ at $98.73 a barrel. Both contracts gained more than 1% last week.
“Brent has been more resilient because of what is happening in the Middle East,” said Michael Hewson, an analyst at CMC Markets. “But oil is basically trading in a range. There’s a little bit of ebb and flow but not much driving it.”
Olivier Jakob, an oil analyst at Petromatrix in Switzerland, agreed. “Crude oil is trading in a very small price range, historical volatility is dropping, volume is low, and speculators are short-covering rather than buying,” he said.
“We are supposed to be near an oil crisis with missiles flying all over the Strait of Hormuz, but the volatility in crude oil has been at the lowest level in 13 months.”
Oil retreated from Friday’s levels after an Iranian parliamentary vote proposing the immediate suspension of crude exports to the European Union did not go ahead at the weekend.
Lawmakers had raised the possibility of turning the tables on the European Union, which will implement its own embargo on Iranian oil by July as it tightens sanctions on Tehran over its nuclear programme.
But analysts and traders were sceptical that Iran would abruptly cease exports without lining up alternative buyers, given its dependency on oil revenues.
“If there are further comments about stopping oil exports to Europe, prices will rise, but I rather doubt this will happen. It is just jawboning,” said Carsten Fritsch, an energy analyst at Commerzbank in Frankfurt.
India, a major customer for Iranian crude, said it would not join the wider international efforts to put pressure on Tehran by cutting oil purchases.
Analysts at JBC Energy noted the impact on the EU member states with struggling economies if Iran moved quickly.
“A move by Iran to cut exports to EU member states before buyers have time to line up alternatives would be a blow to countries such as Italy, Spain and Greece, which account for the bulk of crude EU imports from Iran,” they said.
Christopher Bellew, a trader at Jefferies Bache in London, said Brent was also taking some support from much colder weather in northwest Europe forecast for the next two to three weeks. This may encourage refineries to process more crude oil to meet heating oil demand.
By contrast, US heating oil demand this week is expected to be 26.5% below normal as the winter remains mild.