Thursday, January 7, 2016

Oil prices will rise in case of Riyadh-Tehran conflict turns into a military confrontation.

Oil prices could rise in case of Saudi Arabia-Iran hot conflict. (Taz).

Supplies continue to exceed demands on the world hydrocarbon market, Valentyn Zemlyansky, the director of energy programs at the Center of World Economy and International Relations of Ukraine’s National Academy of Sciences, told Trend Jan. 6.

The oil price growth is not expected in the short term,” he said.

The expert said that the oil price can increase on the world market if Saudi Arabia-Iran conflict deteriorates.

He did not rule out the possibility that Riyadh-Tehran conflict can turn into a military confrontation.

"The world economy is in a serious crisis,” he said. “This is the first sign of a possible big conflict."

Iran produces 2.8 million barrels of oil per day and exports 1.1 million barrels of this volume per day.
Saudi Arabia produces more than 10 million barrels of oil daily and exports more than seven million barrels per day.

Relations between Saudi Arabia and Iran soured after execution of Nimr al-Nimr, a prominent Shia cleric, by the Kingdom along with other 46 people, which was followed by a strong protest from Iran.

Iranian Kharg Terminal is getting ready to receive big tankers, once the sanctions on Iran are lifted.
Right now nine tankers can simultaneously berth at Kharg Terminal, which is able to receive giant tankers with 360 barrels capacity, Qolamhossein Gerami, an official with Iran’s Oil Terminals Company said.

Referring to Kharg as the biggest oil terminal in Iran, he said the terminal is currently responsible for letting through 94 percent of Iran’s exported oil, Mehr news agency reported January 6.

Oil is pumped through five pipelines to the terminal and stored in reservoirs as big as one million barrels, he explained.

He said the terminal is able to store 28 million barrels of oil, both light and heavy.

At the eastern terminal, with a T pier, six tankers can birth at the same time and receive 67,500 barrels of oil per hour, the official further said.

The pier’s waterline is 21 meters and can serve tankers with capacities of 275 thousand metric tons, he noted.
According to the official, the western front can receive three tankers at a time and transfer 360 thousand barrels of oil in one hour.

The pier’s waterline is about 30 meters and is therefore able to serve the biggest tankers there is, he stated.

Any coordination within OPEC is highly unlikely amid the tensions between Iran and Saudi Arabia, Sam Barden, the director of Wimpole International, an energy market development company believes.

OPEC has no future what so ever. It does not fit the notion of a modern economy, and given current tensions between Iran and Saudi Arabia the likely hope of any coordination is zero,” Barden told Trend.

Over the past few days, the relations between Iran and Saudi Arabia deteriorated following the kingdom’s execution of a prominent Shia cleric Nimr al-Nimr on Jan. 2.

And then there's this:

First of all, the prices may increase in reaction for the potential threat of failures in supply of raw materials via the Strait of Hormuz, which is of strategic importance to the world market, through which one-third of the world’s maritime oil supplies pass. The northern coast of the strait belongs to Iran, the southern – to the United Arab Emirates, which have lowered the rank of its embassy in Tehran as a result of the recent conflict.

For temporary diversification and security of oil supplies to the world market, Iran can potentially start transportation through Azerbaijan, which has an extensive network of oil pipelines. Technically, Iran can deliver its oil to Baku via the Caspian Sea or railway with a view to its subsequent export via the Baku-Tbilisi-Ceyhan (BTC) pipeline with access to the Mediterranean Sea. However, the economy of such deliveries should be seriously studied, especially against the background of low global oil prices.
Thus, on one hand, a mess in the OPEC may lead to uncontrolled oil supplies to the global market, which would reduce oil prices to historic lows, 
on the other hand - the deliberate blocking or, at least, a threat of restrictions in the Strait of Hormuz with the further development of the conflict may cause an increase in oil futures prices.


On average, the “all-in,” breakeven cost for U.S. hydraulic shale is $65 per barrel, according to a study by Rystad Energy and Morgan Stanley Commodity Research.

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