Iran prepares to resist Saudi Arabia even with $25 oil price

Iran needs $72 per barrel for its budget. That Iran (along with oil shale production) is one of the targets of Saudi Arabia’s oil price strategy seems very clear. They have the lowest cost of extraction and with their accumulated reserves they could probably withstand 5 -8 years with a price lower than $50. However their strategy will be completely nullified if there is growth in demand (for example with an economic recovery in China) before they have brought the shale oil producers and Iran to their knees. The question now is how low the price can go?

Light crude price February 2015

Light crude price February 2015

The Iranians are girding their loins for a battle and are adjusting their budgets to be able to withstand a longer period with relatively low prices. Iran probably wants to avoid precipitating a further fall but I suspect that just mentioning their worst fears – in the present atmosphere – will only ensure that those fears come true. It would seem, from the almost belligerent Iranian stance, that prices will now almost certainly drop to around $25 per barrel within the next 6 -12 months.

Reuters:

Iran sees no sign of a shift within OPEC toward action to support oil prices, its oil minister said, adding its oil industry could ride out a further price slump to $25 a barrel.

The comments are a further sign that despite lobbying by Iranand Venezuela, there is little chance of collective action by the 12-member OPEC to prop up prices – entrenching the reluctance of individual members to curb their own supplies.

In remarks posted on the Iranian oil ministry’s website SHANA, Oil Minister Bijan Zanganeh called for increased cooperation between members of the Organization of the Petroleum Exporting Countries. ……. 

Oil has plunged by more than half since June 2014 to below $50 a barrel on Monday, pressured by a global glut and OPEC’s refusal at its last meeting in November to cut its output. ……. 

OPEC decided against a production cut despite misgivings from non-Gulf members such as Iran and Venezuela, after top producer Saudi Arabia argued the group needed to defend market share against U.S. shale oil and other competing sources. ……… 

Zanganeh said Iran had no plans to cut its own oil production and that it had no further meetings with Saudi Arabia – Iran’s main political rival in the Gulf – since the OPEC meeting.

Last week, Iranian President Hassan Rouhani said countries behind the price fall would regret their decision and warned that Saudi Arabia and Kuwait would suffer alongside Iran from the price drop.

Zanganeh said Iran’s budget should be based on oil at $72 per barrel, but Iran could withstand lower oil prices. “Even if the oil price goes down to $25 a barrel, the oil industry will not be threatened,” the Fars news agency quoted him as saying.

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