Friday, May 17, 2024
HomeInternationalIran's Discounted Crude Oil: Filling the Void Left by OPEC+'s Production Cuts

Iran’s Discounted Crude Oil: Filling the Void Left by OPEC+’s Production Cuts

It seems the international oil market is getting a makeover with Iran’s cheap oil stepping up to plug the gap left by Saudi Arabia, Russia, and other major oil powerhouses who have pulled back on crude production.

Based on data collected by Kpler and Petro-Logistics, and quoted by the Wall Street Journal, Iranian oil shipments soared to an average of 1.6 million barrels a day during May and June. That’s more than double the quantity sold during the same period in the previous year and is the highest volume exported by Iran since the reinstatement of strict US sanctions in 2018.

Guess where the lion’s share of that oil is heading? China. In fact, it has become Iran’s top oil customer, with the Asian giant purchasing 359,000 barrels of crude a day from Iran in May alone. But that’s not all. Syria and Venezuela have also climbed the ranks, emerging as significant buyers of Iranian oil.

This influx of Iranian crude comes at a time when Saudi Arabia, Russia, and other OPEC+ members are dialing back their oil production. Saudi Arabia, the oil cartel’s de-facto leader, has extended its production cut of 1 million barrels a day through August. Not to be outdone, Russia has pledged to slash its oil output by another half million barrels a day.

The Kingdom of Saudi Arabia has been voicing concerns over market “distortions” which have kept oil prices on the lower side, prompting it to slash production dramatically over the last year to prop up crude prices. It’s noteworthy to mention that Iran, while part of OPEC+, doesn’t have an output quota within the cartel, due to its current situation under US sanctions.

Adding a twist to the tale, Iranian suppliers are offering steep discounts on crude oil compared to Saudi Arabia and even Russia, which itself has been selling its oil at a reduced rate since it began its invasion of Ukraine.

The sweet deal for buyers is a staggering $30 discount per barrel from Iran compared to other competitors in the Persian Gulf, as confirmed by officials. Despite this, Iran managed to net a hefty $28 billion in crude exports in the last Persian calendar year, ending in March 2023 – roughly quadrupling its earnings from 2021.

For investors, the shifting dynamics of the oil market underscore the importance of keeping a close eye on international relations and their impacts on supply and demand. As the saying goes, “Where there’s change, there’s an opportunity”. And in this case, the shift in oil production and sales presents some interesting prospects for investors ready to navigate the stormy seas of geopolitics.