Get 40% Off
🚀 Our AI Picked 6 Stocks that Jumped +25% in Q1. Which Picks Will Soar in Q2?Unlock full list

Prospects For 3 Global Oil Influencers Are Shifting The Market. Here's How

Published 24/12/2020, 09:11 pm
Updated 09/07/2023, 08:31 pm

As we approach the new year, much of the oil markets' attention has been on coronavirus developments, OPEC+ debates, holiday travel forecasts and U.S. politics.

Crude Oil Daily Chart

But there are other major players in the oil market that should not be ignored. Here is a look at the current situation for three major players in the oil industry that have been out of the headlines for most of the last quarter: Iran, Venezuela and China.

1. Iran

Iran arguably has the most to gain of any country with a shift from a Trump presidency to a Biden presidency. President Trump’s administration withdrew the United States from the JCPOA, the Iran nuclear put in place by Obama, has implemented tough sanctions against Iran and killed the head of the IRGC forces. Biden, on the other hand, pledged during the campaign to remove Trump’s sanctions and restore the JCPOA. There are many unresolved questions about what Biden hopes to do vis-à-vis Iran, but Iran is already looking to ramp up its oil production in 2021 with the intention of exporting it.

According to S&P Platts, Iran produced 2.02 million bpd in November. During 2020, the nation's oil output fluctuated between 2.12 million bpd and 1.95 million bpd.

Despite the stringent sanctions currently in place, Iran exported about 1.02 million bpd in November, according to TankerTrackers.com. Before sanctions took effect, Iran was producing upwards of 4 million bpd, and the country is already starting to prepare to raise production back to those levels in 2021.

The budget from President Rouhani’s government for the Iranian calendar year that starts in March anticipates oil sales of 2.3 million bpd. The strategy, as Rouhani detailed in a speech Dec. 9, is to boost exports to such a level that sanctioning them again would prove logistically impossible. The National Iranian Oil Company seeks to lift oil production to 6.5 million bpd over the next 20 years.

The question for markets and traders is whether these plans for production and export expansion are realistic and are currently factored into 2021 oil market projections.

Iran is likely to increase its clandestine exports somewhat. Biden’s team lacks the interest to pursue sanctions violators (especially with regard to Iran) with the same zeal as the Trump administration. However, many experts believe that logistically Iran would not be able to grow exports on a scale that could influence the market until at least the second half of 2021. Therefore, traders don’t expect a boost in global supply out of Iran just yet.

2. Venezuela

According to Platts, Venezuela’s November oil production averaged only 430,000 bpd. Even though Venezuela has (according to OPEC) the largest oil reserves on the planet, it is barely producing any oil and is forced to import gasoline. During the campaign, Biden indicated that he would not ease the sanctions on Venezuela, which prevent it from exporting oil and importing gasoline. (It should be noted that according to TankerTrackers.com, Venezuela continues to export some oil via similar clandestine methods used by Iran).

At the beginning of 2020, the U.S. sanctioned an arm of Rosneft (MCX:ROSN) that had assets in Venezuela and had been selling Venezuelan oil. Rosneft sold these assets to the Russian government and neither Russia nor Rosneft is currently marketing Venezuelan oil.

Other companies like ENI (MI:ENI), Repsol (MC:REP) and Reliance (NYSE:RS), had been bartering Venezuelan heavy oil for refined products, but the threat of secondary sanctions from the U.S. compelled them to cease operations in Venezuela.

Unless sanctions are lifted, it seems that Venezuela’s role in the market in 2021 may be limited to that of a consumer of refined products. Otherwise, barring a political shift in Venezuela or a major shift in U.S. policy, markets and traders are not expecting much from this South American country in the near future.

3. China

China’s oil demand is playing a major role in oil markets at the end of 2020. Orders for crude oil for January and February from the nation have been robust and are seen as one of the drivers of oil’s recent rally.

Another plan for 2021: China looks to add and fill another 100 million barrels worth of new state-owned storage tanks in 2021. (For comparison, global oil demand over the last few years have been around 100 million barrels per day).

Private oil refiners and storage facilities are also set to grow in 2021. This information indicates higher demand out of China next year, which, of course, is a good sign for the price of oil.

Next week we will look at what to watch for in 2021.

Latest comments

Risk Disclosure: Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.
© 2007-2024 - Fusion Media Limited. All Rights Reserved.