Optimistic oil figures in Iran's next year budget bill

Iranian President Hassan Rouhani -- unlike the country's previous president, Mahmoud Ahmadinejad -- submitted the draft budget bill for the next Iranian calendar year (to start on March 21, 2014) to the parliament on time; something which was unprecedented in the past eight years.

Rouhani brought up the point in his speech at the legislative chamber. He said that submitting the draft budget bill on time was one of his electoral campaign promises.

Ahmadinejad never submitted the drafts on time which used to cause a lot of trouble. In some cases the budget still hadn't been approved a few months after beginning the new year.

Iran's next year budget bill has set the ceiling budget at 7830 trillion rials (about $315 billion based on the U.S. official exchange rate of 24,850 rials). The figure shows 8.4 percent growth year on year.

The bill has been devised on an average oil price of 100 dollars per barrel and the exchange rate of 26,000 rials for USD.

The exchange rate of USD at the free market is currently above 29,000 rials, while the rate at the forex center (being used for imports and exports) is below 25,000 rials.

OPEC crude oil price currently stands at above 108 dollars per barrel. Based on the organization's latest report, the average price for Iranian heavy crude in the past eight months was $105.32.

OPEC's oil supply and demand outlook

The 12 members of OPEC failed to reach an agreement over production cuts last week. Next year's demand for the organization's oil would be 400,000 barrels less than the current production ceiling of 30 million barrels per day.

Iran and Iraq are also determined to increase their production. Both the countries say they want to boost their output to 4 million barrels per day by the end of 2014, so Tehran and Baghdad's production would be increased by 1.350 million barrels and 800,000 barrels, respectively. However, securing this boost in production seems nearly impossible for both countries due to the slow trend of investment and instability in Iraq, and the continued oil sanctions against Iran.

But it is almost certain that the two countries will increase their output next year.

On the other hand, continued unrest and strikes have dropped Libya's daily oil production from 1.4 million barrels in July to 250,000 barrels. Tripoli says it wants to increase its output to 1.3 million barrels in two weeks. However, it remains to be seen if the central government can manage to control the violence and strikes in the eastern parts of the country.

Libya's Oil Minister Abdelbari al-Arusi said on Dec. 7 that the country has lost over $7.29 billion in oil revenues since July due to the production cut. The country also has to compete with Algeria and Nigeria in oil markets.

Libya currently exports around 120,000 barrels of oil. Given the country's severe budget shortage and its dire need for oil revenues, it won't hesitate to use any possible way to increase its oil exports.

Beside these events, Russia produced 10.6 million barrels of oil in November, which was unprecedented since the collapse of the former Soviet Union. The U.S. crude oil output also hit 6.5 million barrels last year thanks to the technology for tapping shale gas reserves. The output increased to 7.5 million barrels, and is forecast to reach 8.5 million barrels in 2014, according to the U.S. Energy Information Administration.

Based on the International Energy Agency's projection, the global demand for crude oil will be just one million barrels per day in 2014. Therefore, OPEC will probably decrease oil prices in the next year, so that the price may fall $15-$20 per barrel, if Libya resumes production and Iraq boosts production.

Iran targets 3.3 mb p/d oil output

Iran has set the daily oil production at 3.3 million barrels and an oil income of 750 trillion rials (about $30.1 billion) in the next calendar year's budget bill. Each barrel of crude oil and gas condensate will be sold to domestic refineries at $18.5, according to the bill.

The bill has not mentioned exact figures for domestic production and exports of oil, but the Iranian oil minister has recently said that at least 1.5 million barrels of oil will be exported next year.

According to OPEC's annual report, Iran's total refining capacity was 1.681 million barrels per day last year, a 5 percent decline compared to 2011.

Even if Iran restores its refining capacity in the next year, it will have 1.6 million barrels of surplus oil per day to be exported. During the first 10 months of the current year, Iran's average oil exports hit one million barrels per day. According to Iran's Customs Administration, the country's gas condensates exported in the past calendar month hit 345,000 barrels per day, a 45 percent rise compared to its preceding months. Iran has exported 200,000 barrels of condensates per day on the average per month in the current year. The country had exported 2.2 million barrels of oil and 300,000 barrels of gas condensates per day before the international sanctions hit the country's oil sector.

In the most optimistic case, Iran will export 300,000 barrels of condensates and 1.3 million barrels of oil per day. Of course, Iran cannot boost its oil exports in the next six months due to the continuation of the international sanctions. The recent agreement between Iran and the six major powers does not include lifting oil sanctions. However, if the two sides agree on lifting the sanctions after the 6-month period, Iran will be allowed to boost it crude oil exports gradually .

The problem is that Iran holds 37 million barrels of oil stored on tankers just waiting for the lifting of the sanctions to be exported. So, increasing production from 2.65 million barrels to 3 million barrels, plus 300,000 barrels of condensates, is highly dependent on lifting the sanctions and reviving Iran's traditional oil markets.


By Dalga Khatinoglu     /Trend/