Monday, 04 February 2013 11:24

Iranian Embargoes may Cause an Increase in Barrel Price

According to the Crude Oil Inventory Report by the US Energy Information Administration, the global consumption has increased to about .09 billion barrels per day last year to arrive at 89.2 million bbl per day, and it is expected that the growth will increase through to 2014 to 91.4 million bbl per day. With OPEC fuel production falling below forecast, and with increasing consumption of those outside of OPEC, the forecast casts a dire outlook for 2014 projections in meeting the global demand.

Characteristic Increase in Production

Supply in the United states and Russia has grown for the better part of 2012 as production outside of OPEC did not meet expectations, falling below the US Energy Administration and Information forecast. With export embargoes on Iran from the US and European Markets, nominal operating levels are not expected t be achieved, and the global demand will increase, driving up the price further.

The effects of the Sanctions in Iran are already being felt; by the end of last year, the deficit in US and UK imports were driving it up the barrel price by 12 cents at the beginning of 2013. The Crude Oil Inventory report suggests price projections to the increase, which are factored by the increase in consumption in the Asian markets, with a marked increase in production from China, edging close to the leading producers.

The US, citing the critical possible outcomes, has delayed many trade sanctions with Iran in regulating the global price per barrel from rising any higher, but these efforts might not yield significant results, as the shortfall is already being experienced according to the latest crude oil inventory report, which sites an increase in aggregate production, which, while it looks like good news, is not.

With OPEC members seeking a reduction in price, Iran Selling their crude oil to non participating members of the trade embargo, and increased production of oil in US markets according to the crude oil inventory report, the outcome for 2014 is likely to be characterized by:
-a large influx in oil prices
-a global deficit in supply
-depletion of reserves

Who are the losers?
Iran is already investing in storage facilities to manage the decrease in demand for the product, which, at the time of export, will have increased the production cost, and inevitably affect the export price per barrel. Though speculations have arisen that it might not significantly affect oil prices, investors and financiers disagree, because the global price is based upon the production competitiveness of the commodity.

Other speculations point towards normalcy, as it is expected that the Iranian deficit to be met by production from Syria and other middle east sources. Either way, it has created a nervous environment for trade, with many investors using conservative moves in anticipation of unpredictable oil prices, and who would blame them? History has shown us that even if we increase production in meeting demand deficits caused by sanctions, the average global production still drops and drives up the price significantly, looking at the most likely scenario, the oil which will be stored up following the inception of increasing capacity in March 2013 will only leave Iran as the winner. 


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