Iran sanctions waiver by US behind fall in crude prices: Azlin Ahmad, Argus Media

As Saudi Arabia and UAE have increased production a little bit and Kuwait has some spare capacity and that should be enough to meet supply cut from Iran, Azlin Ahmad, Editor - crude oil, Argus Media, tells ET Now.

Edited excerpts:

What do you make of this fall in oil price? Is this a big move ahead of the 4th November sanction details that are coming in?

The main reason is that the US is giving some waivers. It was uncertain whether any country, particularly in Asia, will get any waivers from US sanctions against Iran. So many countries in Asia including India, China, Japan and South Korea had drastically reduced their imports of trading crude and obviously they were buying a lot more other crude, pushing prices up. Now that the US is talking about giving countries waivers, crude prices are declining in the last couple of days.

How do you read into the comments from the Saudi oil minister that we would produce as much as we can? Going forward, do you expect a supply excess?


Our view has always been that if you just look at the demand-supply numbers, there should not be any supply crunch in the rest of this year because what we always thought was that capacity would probably be able to meet a decline in Iranian crude exports.

As Saudi Arabia and UAE have increased production a little bit and Kuwait does have some spare capacity, it should meet the supply cut from Iran.

Saudi Arabian capacity is estimated at about 12 million barrels per day. Even at a production rate of 10.7 million barrels per day, there is still spare capacity. We feel that there is enough supply, enough capacity to meet the drop in Iranian export.

With Saudi Arabia as well as Russia increasing output, will they both be able to make up for the production cut from the Iran and Libya side of the world?

In August, OPEC spare capacity was about 1.07 million barrel per day. That spare capacity is expected to rise to about 2 million barrels per day by the end of this year and potentially 2.5 million barrels per day by the end of 2019.

If you look at the drop in Iranian exports, OPEC’s spare capacity should be able to cover the drop in Iranian exports and Russia has also said that it can increase production. So we are not going to see demand supply mismatch and shortage of oil.

In the medium term, where are oil prices headed? Can we expect a downtick?

Brent is already almost $5-10 down over the last few months. It is not likely to see a further sharp drop in prices. There is still potential for crude prices to go back up because it depends on the US oil reserves and how much they allow countries to immediately import Iranian crude.

We could see prices rise a little bit over the next three months but I doubt it is going to see a price like $100 per barrel in the next few weeks. I do not think we are going to see a $60 barrel oil either.