OPEC Secretary-General Warns of Unstable Crude Prices with EU’s Iranian oil Embargo

Abdalla el-Badri, secretary-general of the Organization of the Petroleum Exporting Countries (OPEC), recently cautioned of unstable crude oil prices as the market adjusts to the European Union’s decision to embargo imports of Iranian oil.

In a London interview, he said that countries comprising the European Union will take a while before finding a substitute for the 500,000 barrels of oil it usually imports from Iran on a daily basis.

But he reiterated that there is sufficient supply in the market. He said that about 30.6 million barrels per day was produced by OPEC. That quantity is 600,000 barrels per day more than its agreed target during its last meeting in the month of December, leaving most traders curious as to how to invest in a way that maximizes these events.

Crude prices have been quite stable since the spring season last year. However, it increased by $4 to $5 per barrel during the New Year as the European Union planned its Iranian oil ban and Tehran threatened to block the Hormuz Strait.

Recently, the EU gave its decision to impose sanctions on Iran but the implementation will begin in July in order to give countries that are highly dependent on Iran-supplied crude ample time to adjust. In retaliation, Iran has also expressed threats to impose its personal ban on European exports effective immediately.

Analysts think that the European customers of Iran must be able to look for alternative suppliers quite easily. Production in Libya has already recovered and it can now produce 1.3 million barrels daily. That rate is not a wide gap from the 1.6 million barrels a day that they used to produce prior to the civil war that occurred last year. Moreover, Saudi Arabia has expressed interest to compensate for any disruptions in the supply of Iranian oil.

However, worries on the embargo keeps on affecting oil markets. Oil prices recently grew by more than $1 per barrel with London’s global benchmark trading of Brent oil ending at around $112.25. That rate shows persistent concerns regarding Iranian oil supplies at the same time hopes of closing a deal on Greece’s debt to improve the economic prospects of Europe and possibly increase its oil demand.

Several analysts do not agree with Badri’s forecast of market turmoil. In a research note written by Olivier Jakob of the Petromatrix consultancy, he said that the current events are supposed to put the world in an oil crisis. Yet, crude oil’s instability has stayed at a very low level for almost 13 months.

According to Badri, under usual circumstances, oil prices should already sell at around $100 per barrel. That level is Saudi Arabia’s endorsed target in the early parts of the month and one that is described as ideal for both producers and consumers. The fact that Brent oil was trading at more than $110 reflects that the premium on geopolitical risk is currently at $10 per barrel.

- By Chris Termeer

Chris Termeer

Chris Termeer is an oil and gas consultant, industry commentator and analyst. His book, Fundamentals of Investing in Oil and Gas provides a comprehensive overview of all aspects of the oil and gas industry, including exploration, drilling, production, storage, transportation and refining, to name but a few.

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