The director of the International Atomic Energy Agency (IAEA) confirmed on January 16 that Iran had completed the necessary steps to start the implementation of the Joint Comprehensive Plan of Action (JCPA). The confirmation was a result of agency inspectors on the ground verifying that Iran had carried out all measures required under the JCPA to enable Implementation Day to occur. The moving forward with Implementation Day means that the easing of sanctions can proceed.
According to Amir Hossein Zamaninia, Iran’s deputy oil minister for commerce and international affairs, Iran is targeting an immediate increase in exports of 500k barrels per day now that sanctions on oil sales have been lifted. Iran then plans to double the 500k export target within a few months. If Iran is successful in hitting these targets Iranian exports may get back to pre-sanctions export levels by around mid-2016.
Middle East equity indexes have lost ground recently as a result of countries in the region seeing less revenue from oil as oil prices have continued to decline. Iran’s market was an exception recently, rising on anticipation that revenue from oil sales will increase dramatically as sanctions are lifted despite the low price of oil.
It is likely that Iran will target India as their larger export market in light of slowing economies in China, Japan and South Korea and Saudi Arabia’s fight for Asian market share.
Although the market has been expecting additional Iranian barrels to enter the market this quarter and some of this may already be incorporated into current oil prices, Iran and Saudi Arabia’s fight for market share may put further downward pressure on oil or at minimum it may provide a near term ceiling slightly above where oil is trading today.
There are few near term bullish catalysts on the horizon with Iran and Saudi Arabia pumping more oil, the U.S. continuing to show year over year production increases and what is appearing to be a slowing global economy. Either production needs to decrease or the global economy needs to show signs of stabilization or improvement before a material increase in oil prices can be justified.