Iran's surge in oil exports doesn't mean output is on the rise

By Angelina Rascouet on 5/3/2018

LONDON (Bloomberg) -- Iran is seeing bumper oil exports. But that doesn’t mean production is on a similar trend.

OPEC’s third-largest producer ramped up exports in April to the highest since sanctions were eased more than two years ago. The jump came just weeks before a U.S. decision on whether to pull out of the global deal that relaxed the restrictions, a move that would likely force Iran to cut hundreds of thousands of barrels a day.

Crude shipments climbed to 2.48 MMbpd last month from 2.06 MMbpd in March, according to ship-tracking data compiled by Bloomberg. That coincided with a 4-MMbbl drawdown from tankers storing oil at sea, tanker tracking showed.

“Iran managed a sizable month-on-month gain in exports, largely driven by the release of floating storage,” cargo-tracking company Kpler said in a note.

Refinery maintenance also explains why more barrels were available for export, according to consultant Energy Aspects. The increase in shipments reflects the halt of almost 100,000 bpd of Iranian refining capacity, rather than higher crude output, analyst Richard Mallinson said.

“Production is relatively flat right now” at about 3.8 MMbpd, he said. “We certainly don’t think it’s on the rise.”

The possibility of renewed sanctions on Iran has kept many international oil companies away, hampering the government’s ambitions to raise output. Even France’s Total SA -- the only global major to have signed a significant investment deal in the Persian Gulf nation -- signaled its plans may stall if it doesn’t get an exemption from the U.S. to do business in the country.

“If Iran wants to increase its output capacity to 4.5 MMbpd or 5 MMbpd, they will need major investments and technological advancements which they are lacking now,” said Iman Nasseri, an analyst at consultant FGE.

President Donald Trump is expected to announce by May 12 whether he intends to withdraw the U.S. from the global deal struck in 2015 that lifted certain restrictions on Iran. The potential reinstatement of sanctions, which had constrained its crude exports as well as its capacity to lure foreign investments, is the key risk to production, according to Mallinson.

“It would be sanctions or changes in the political environment that would have a more dramatic effect” on output than anything else, he said.

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