Eni, is apparently, in talks with other companies too. The company has sought to sell minority stakes in fields it operates to fund future development and support dividends, generating US$9bn in the last four years with the strategy it calls the ‘dual exploration model’, said the report.

The Rome-based company, which has boasted record production and a string of discoveries including the giant Zohr gas field in Egypt, won the area in Mexico’s second-ever oil auction in 2015. The deal would mark the first Mexico farm-out, a joint-venture in which help in developing an oil area is exchanged for a stake, by companies other than Petroleos Mexicanos since the country opened its oil industry to competition in 2013, ending three-quarters of a century of state monopoly over exploration and production

If negotiations are successful, Qatar Petroleum would hold an interest in an area comprising the Amoca, Mizton and Tecoalli shallow-water oil fields in the southern Gulf of Mexico, which Eni estimates may hold the equivalent of 2 Bbbl of oil. The Italian driller has picked up blocks in subsequent tenders in Mexico, including a deep-water prospect in a partnership with Qatar Petroleum. For its part, Qatar Petroleum nabbed three other blocks in the same bidding round in January.

Eni is among a number of European drillers that have swarmed Mexico’s newly opened oil territory. An auction Last month saw blocks awarded to the UK’s BP Plc, France’s Total SA, Spain’s Repsol SA, Lukoil PJSC and DEA Deutsche Erdoel AG of Germany, among others. The next tenders, including one for onshore areas and another for shale, will be held in July and September, respectively — prior to the end of President Enrique Pena Nieto’s term.

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Al-Falih told reporters during an energy event in the United Arab Emirates capital Abu Dhabi that demand will pick up in the summer and OPEC wants to make sure markets are well-supplied.

“We don’t think it’s necessary, given the level of compliance we have seen and given the expectations of demand,” Al-Falih said on Monday. “The re-balancing, which started slowly in 2016, will have its full impact by the first half. Of course, there are many variables that can come into play between now and June, and at that time we will be able to reassess.”

Oil prices were down early Monday morning after Saudi Arabia signaled that OPEC is unlikely to extend the supply-cut deal beyond June.

Saudi Arabia is the world’s second largest producer of oil. It has cut production to less than 10 million barrels a day, below its targeted level, and is currently producing at a 22-month low, Al-Falih said.

Out of the total cut of 1.758 million barrels per day, which roughly equals 2 percent of overall global crude oil supply, OPEC members will contribute 1.2 million barrels per day.

Despite production cuts after the OPEC deal, many analysts forecast that the move may not be successful due to lack of commitment from all producers.

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Recent yen weakness is providing welcome relief for the Bank of Japan and removes the need for further monetary easing for the time being.  According to HSBC economists, a generous fiscal stimulus should help lift growth above 1% in 2017, but momentum could fizzle out thereafter unless public spending and tax cuts provide yet more support the following year.

Industrial production has picked momentum while investment by private companies appears to have stabilised. However, consumer spending continues to disappoint despite unemployment rate at an over two-decade low. As a result, the household saving rate has climbed sharply in recent years, something that will need to reverse if consumption is to fuel overall growth.

The report goes on to add that this essentially means that growth appears stable for the time being and should even pick up steam next year as the fiscal stimulus programme is implemented.

One prominent risk facing Japan in 2017 – along with other Asian and emerging market economies – is growing protectionism in the US, with possibly targeted action taken against Japanese exporters. On the positive side, however, an agreement between the EU and Japan to liberalise bilateral trade could help support exports.

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Recent yen weakness is providing welcome relief for the Bank of Japan and removes the need for further monetary easing for the time being.  According to HSBC economists, a generous fiscal stimulus should help lift growth above 1% in 2017, but momentum could fizzle out thereafter unless public spending and tax cuts provide yet more support the following year.

Industrial production has picked momentum while investment by private companies appears to have stabilised. However, consumer spending continues to disappoint despite unemployment rate at an over two-decade low. As a result, the household saving rate has climbed sharply in recent years, something that will need to reverse if consumption is to fuel overall growth.

The report goes on to add that this essentially means that growth appears stable for the time being and should even pick up steam next year as the fiscal stimulus programme is implemented.

One prominent risk facing Japan in 2017 – along with other Asian and emerging market economies – is growing protectionism in the US, with possibly targeted action taken against Japanese exporters. On the positive side, however, an agreement between the EU and Japan to liberalise bilateral trade could help support exports.

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IFM Correspondent

October 26, 2016: Speaking at the World Energy Congress in Istanbul, Turkey, Saudi Arabia’s Energy Minister Khalid al-Falih said that as market fundamentals improve, the current down cycle of crude prices is close to an end.

Oil prices are currently hovering around $50 per barrel after hitting a 10-year low of less than $30 in January, after having fallen from a peak of over $100 in mid-2014.

“The current down cycle is nearing an end,” Falih told a joint press conference with his Russian counterpart Alexander Novak after a Gulf ministerial meeting in Riyadh. “Market fundamentals, in terms of supply and demand, have begun to improve.”

Qatar’s energy minister Mohammed al-Sada, whose country holds the rotating presidency of the OPEC oil exporting cartel, also said the ‘difficult phase is over’. Further, he added, “Although the market is heading to being balanced, it needs our joint effort, and we all agreed that we need to take measures to bring back this balance.”

Views now closer to those of Russia

Al-Falih stated that the points of view of Saudi and Russia – the world’s leading oil producer – on the need to stabilise the market ‘are getting closer’.

“Saudi Arabia has started to play an important role of coordinating between Russia, and OPEC, specifically the Gulf countries,” Falih said at a news conference in Riyadh with his counterparts from Russia and Qatar.

“We have managed today, through a common meeting, to reach a common notion to what we can reach in November,” Falih said, referring to an OPEC meeting to be held in Vienna on November 30, when the group is set to finalise an agreement on a cut in production.

OPEC has invited Russia and key non-members to a meeting later in October as the cartel and Moscow seek to tighten cooperation to boost historically low crude prices.

Russia: Deal to depend on OPEC accord 

Novak said that Russia’s production level in any accord to shore up prices would depend on the agreement OPEC members reached between themselves beforehand, and on Moscow’s discussions with the exporter group.

“I would like to stress once again that we are not ready to give figures because consultations are continuing and the levels would be dependent on the final agreement of OPEC and the result of our OPEC negotiations,” he told reporters in Riyadh after talks with his counterparts from Saudi Arabia and Qatar.

When asked whether Russia would freeze production at current level or cut below them, Novak replied, “We are looking at a number of options. I don’t want to give the final decision yet but we are considering a few options at the moment.”

Bid to stabilise the market 

Earlier, al-Falih said that he had invited Novak to join the meeting of Gulf Arab oil ministers in Riyadh as part of efforts to cooperate with non-OPEC members to stabilise the oil market.

“Russia is one of the world’s biggest oil producers, and is one of the influential parties in the stability of the oil market,” Falih said at the opening session of the ministers of the six-member Gulf Cooperation Council (GCC).

Falih said Novak had welcomed the invitation, “as a clear indication of [a] sincere desire to continue cooperation and coordination with the oil producing and exporting countries for more stability in the market.”

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IFM Correspondent

October 24, 2016: It is back to square one. When things were finally looking up for the oil market with Iran agreeing to stabilise the market, Iraq played a spoilsport by refusing to join any deal from OPEC to cut production.

OPEC’s second largest producer reasoned that since the country is embroiled in a war with Islamic militants, it will not be possible for the country to join the oil-price-cut brigade. The country currently produces more than 4.7 million barrels a day, and Iraq’s output could rise higher still as the government urges international companies to boost production at its fields. “We are with OPEC policy and OPEC unity,” said Jabber Al-Luaibi, the oil minister of Iraq, adding that “but this should not be at our expense.”

OPEC has been trying to woo producers to go for a cut in more than eight years, a policy shift members agreed to last month in Algiers. Like Iraq, Russia too refused to give in writing its plans to for a production cut.

Russian energy minister Alexander Novak said they were reviewing the many scenarios to speed up the recovery of oil market.

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Prof. Keyvan Jafari Tehrani

September 12, 2013: The Iran Customs Administration released statistics in connection with the foreign trade during the first four months of the Iranian year 1395 (from March 21^st through July 21^st, 2016). The statistics show that Iran steel industry has performed above expectations and has exported more than two million tonnes (MT), which is more than a 77 % increase in comparison with the same period of the preceding year. By taking into account of different types of steel products, we exported 2.52 MT of steel amounting to $124,276,000. The export of steel products in between June 21^st to July 21^st, 2016 has been 521,400 tonnes, which shows an 86 % growth in comparison to the same month in the past year and is above the average of the first four months of the year.

Mobarakeh Steel Company gained the first rank, followed by Hormozgan Steel Company. The planned export for the current Iranian year 1395 (March 21^st, 2016 – March 20^th, 2017) is 6 million tonnes. We can say that the target will be fully achievable based on statistics announced by Iran Customs Administration.

The production statistics show copper concentrate, iron ore concentrate and molybdenum production have taken the upper ranks. In the other words, Iran is taken steps forward for production and export of concentrate of base metals because they will result in more profit and added value.

According to the statistics, the production of copper concentrate has been more than 371,000 tonnes during the first four months of the current Iranian year, which shows a 22.84 % increase in comparison with the same period of the preceding year.

The iron ore concentrate production amounts to 9.6 MT with a 15.84 % increase in comparison with the same period of the preceding year. The production of iron ore fines & lump during the same period was 2.14 MT with a 16.55 % decrement.

These statistics also shows that we have had a 3.9 % increase in sponge iron production and produced 5.5 MT but the pellets and billet productions have been 7.9 MT and 4.75 MT with 0.37% and 3.33% decrease, respectively in comparison with the same statistics of the preceding year. Since new pelletising plants will be commissioned this year, it will result in an increase in pellets production in the current year.

26 pelletising plants with total production capacity of 54 MT are under construction. This will result in increase of pellets production capacity to more than 70 MT, which is enough for production of 50 MT of steel. As the planned target by the end of the 6^th Development Plan is not more than 40.3 MT, there will be some extra quantities, which can be exported as pellets or used to produce DRI for export. Considering the increase in the price of pellets in comparison to iron ore (pellets price increment was 69% while for iron ore it was only 39%), it’s evident that exporting pellets is more profitable. By opening of Gol-e-Gohar new pelletising plant with 5 MT annual production, Iran can start exporting pellets between October 2016 and March 2017.

Going by the statistics released by World Steel Association, there has been no change in the position of Iran among steel producers so far. The country has retained its 14^th rank behind China, Japan, India, USA, Russia, South Korea, Germany, Turkey, Brazil, Ukraine, Italy, Taiwan and Mexico. During this period, the production of crude steel by Iranian producers has been 10,120,000 tonnes.

Based on statistics released by the association, production of crude steel in Iran has had a 4.9% increment in comparison with the same period of the preceding year and it has reached 9,645,000 tonnes. The steel production of Iran in July was 1,370,000 tonnes, which is a 7.6% increment in comparison to July 2015 but the production in June has been less than the same month in 2015, which had been 1,534,000 tonnes.

Foreign trade

The statistics of foreign trade of Iran from March 21^st through July 21^st, 2016 indicates a 40% increase in export of iron ore with less than 40% iron content. The total figure for export of both iron ore Fines & Lump with Fe content above 40% along with concentrate during this period has touched 5,790,000 tonnes, valued at $227,161,000.

In other commodities, such as cement products, exports were at 4.3 million tonnes, valued at $165,913,000. The total amount of lead exported was 49,000 tonnes, amounting to $65.6mn and 44,600 tonnes of zinc amounting to $53 mn. The value of export of aluminum products has been 39,500 tonnes amounting to $50.2mn.

Statistics released by the Iran Customs Administration show that except for a drop in export of both cement and aluminum, which for cement had been the result of limitations imposed on import to Iraq, we have had an increase in export of all other mining and base metal products, like iron ore, copper, steel, lead and zinc.

FDI in mines and steel

Dr. Mehdi Karbasian, Chairman & Managing Director of IMIDRO, stated that according to the 6^th Development Plan, there are great opportunities for foreign direct investment (FDI) in mine and mining industry development projects, especially in steel, aluminum, copper and zinc sectors. In the mining sector, by taking into account the importance of exploration, Iran mainly desires to attract foreign investment in exploration and completion of the mine chain and value-add projects up to production of the end products, such as copper or steel.

Dr. Karbasian pointed out, “I believe that the Joint Comprehensive Plan of Action (JCPOA) has created the most important opportunity for development of investment in mine and mine industries sector.  Other parameters are decrease of inflation rate and fixed exchange rate, which in turn indicate the economic stability that is prerequisite for investment in any country, including in Iran. The decrease of inflation rate below 10, which had been among the targets of the 11^th government and has been seriously followed up, has drawn much more attention this year and this will help the promotion of the situation as well. On the other hand, the Iranian market is a good marketplace for steel products. In addition to local markets, there are good opportunities for export to the neighboring countries. Also, the abundant iron ore reserves, availability of low cost energy and less expensive raw materials and reasonable labour cost are among other privileges of the Iranian market. The privatisation of public complexes will result in higher productivity as well.”

He continued, “According to several investigations, the total decisive and probable iron ore reserves is 5.1 billion tonnes, including 54% (equal to 2,793,295,000 ton) as decisive reserve and 46% (equal to 2,359,012,000 Ton) as probable reserve. Among this figure, 34% are located in the Gol-e-Gohar (Central South Iran) region, 31% in Central Iran region and 22% in Sangan (North East Iran) region.”

According to the Iranian Vision Plan 2025, the steel production by the end of 2025 will be 55 MT out of which 40 MT will be consumed locally. For the purpose of realisation of this plan and building infrastructures, almost $30 billion of foreign investment is required. In addition, by the end of 2025, copper production will be increased to 450,000 tonnes and aluminum production is expected to touch 1.5 MT.

Iran also has plans for production of metals and commodities with higher value addition, like titanium, petroleum coke, coal, and rare earth elements (REE).

The most important challenge associated with the investment in Iran is the lack of adequate support for the industries and mining sectors by the local banking system due to not availability of enough cash flow. By absorbing as much foreign direct investment as possible, we may achieve our goal.

Prof. Keyvan Jafari Tehrani is head of international affairs at Iron Ore Association of Iran (IROPEX). He will be making a presentation on Iran’s mining sector at the inaugural Focus Iran Summit 2016 on 27^th September

 Disclaimer: The views expressed in this article are solely that of the author

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September 6, 2016: The price of oil jumped by 5% after Russia and Saudi Arabia discussed ways to stabilise oil prices on the sidelines of the G20 summit in China.

Both countries said they will not act immediately but could limit output in the future. The joint statement was signed by the respective energy ministers followed by a meeting between Russian President Vladimir Putin and Saudi Deputy Crown Prince Mohammed bin Salman.

Saudi Energy Minister Khalid al-Falih said that there is no need to “freeze production today, there is time to take this kind of decision”. However, he said, freezing production is one of the possibilities. The joint statement marks a significant development in the Saudi-Russia relationship. The two countries have been on opposite ends with regards to Iran and Syria.

Though most OPEC members have of late agreed to freeze production in order to stabilise the market, oil analysts do not have high hopes from the joint statement, especially after having seen OPEC try and fail to reach any sort of agreement for more than a year now. Also, the dynamics between various OPEC members is not very good, to say the least.

John Hall, chairman, Alfa Energy, says that though the announcement is significant, there is nothing much to gain from the statement since all OPEC parties need to agree to this. “I do not think Iran is going to agree on this soon since they are still below their pre sanction production level,” he says.

Putin, in an interview to Bloomberg, said that ‘from the viewpoint of economic sense and logic, it would be correct to find some sort of compromise. I am confident that everyone understands that. We believe that this is the right decision for world energy’. In fact, Putin disclosed that Russia had supported a freeze even in April this year.

OPEC will hold informal talks in Algeria later this month. Its next official meet is scheduled in November in Vienna.

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Daniel Colover

June 23, 2016: Iran’s new approach to building energy allies is being revealed as the former powerhouse staggers back onto the global stage. The lifting of Western-imposed sanctions on January 17 has given the country a new lease of life. Tehran’s ability to adapt will prove vital as today’s market is more competitive than the one it reluctantly stepped back from more than a decade ago.

Tehran remains confident that the country can boost its current 3.7 million barrels a day (b/d) of oil production further, enabling it to be able to export 2.2 million b/d, by the end of the summer. The country’s strategy to regain superiority has started well, but some of this spike in volume may be a case of Iran emptying its full storage capacity.

Iran is planning to introduce new oil contracts, widely known as Iran’s Petroleum Contracts (IPCs), and abandon the generally unpopular buyback contracts that were first introduced in the 1990s. The buybacks were introduced as an attempt to bridge the gap between the country’s need to attract foreign oil and gas companies and a ban on private foreign ownership of natural resources under the Islamic republic’s constitution.

The market remains to be convinced. The new IPCs are essentially risk service contracts where the contractor is paid back by being allocated a portion of the hydrocarbons produced.  However, more clarity is required after a key presentation was cancelled in February.

Blending opportunity

Tehran has adopted a fresh approach to blending in an effort to shrug off its lone-ranger profile and seek collaborative partnerships with energy allies.  Crude oil blending can raise the sale price of a lower grade of crude by blending it with a more valuable grade. This means producers can have a particular variety at the lowest possible cost, which has proved to be a useful trade-off.

In April, Iran joined fellow OPEC members Nigeria, Angola and Algeria with plans to blend its light oil with Venezuela’s heavy crude to get a better crude price. Iran’s Research Institute of Petroleum Industry (RIPI) signed an agreement with South Africa’s state-run PetroSA to jointly pursue research and development (R&D) in crude blending technologies. Iran also signed a long-term cooperation agreement with South Korea at the start of May. It covers a number of areas, including gas and telecommunications, and serves as a springboard for raising Iranian crude supplies to the East Asian country.

Investment culture

Sanctions did not completely derail Iran’s energy infrastructure, with Tehran funnelling cash into the country’s major oil and gas sites – refineries, pipelines, drilling sites, roads and so on – to prepare for the lifting of sanctions. The first phase of the Persian Gulf Star refinery with capacity to produce 360,000 barrels a day (b/d) will be completed by next March, with the remaining two units scheduled to go online in 2017.

When finished, Persian Gulf Star will add 16 million liters/day of gasoline production, the ongoing upgrade at the Bandar Abbas refinery will add 4 million liters/day. Officials say gasoline imports of around 50,000 b/d will not be necessary once the plant is completed. Furthermore, officials have recently said that Iran could even be exporting as much as 10 million liters/day of gasoline after the full start-up of the Persian Gulf Star refinery.

Iran’s ability to reduce inflation from 45% in 2013 to below 10% in late-2015 and introduce subsidy cuts illustrates Tehran’s financial acumen, which will bolster the country’s ability to cope with today’s lower oil prices. The International Monetary Fund (IMF) expects Iran to deliver 4% growth at a time when others in the Middle East grapple with credit rating cuts and urgently slash energy subsidies in a bid to cushion their strained coffers.

Challenges remain

Still, Iran is not free of economic and logistical hurdles. A limited number of ships are curbing Iran’s oil exports. In Mid-April the International Group of P&I raised the reinsurance level to a maximum of $830 million per tanker for shipping Iranian crude, from $580 million previously. Although this does not fully make up for the missing US reinsurance cover as a result of the US’ ongoing sanctions against Iran, it could be seen as sufficient for Asian buyers, such as India and South Korea, or some European importers, for their shipping of Iranian oil, according to industry sources. However, the increased reinsurance is still below a full P&I insurance cover of $7.8 billion.

The movement of Iranian oil to potential consumers is not helped by the remaining US sanctions that prevent business with Tehran in dollars, or with US companies – oil and tanker trade is priced in dollars. The freight shortage will likely ease later this year as ships being used for storage are emptied and Iran repairs unused ships to enlarge its fleet, but the delay will inevitably hamper the speed of Iran’s re-launch into European and Asian markets.

Iran’s seemingly more flexible approach is helping accelerate the country’s return to the global energy market and the international appetite to deal in Iranian business will deepen every time the country reaches its goals, such as the 4mn b/d oil production target. While there is no way to set an exact date, one development is clear – the new Iran has a high chance of regaining its glory of yesteryear.

Daniel Colover is Strategic Oil Market Development Director, S&P Global Platts

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Suparna Goswami Bhattacharya

November 27, 2014: Economists dealing with oil prices and stability were in for a shock when global oil prices started to tumble this year. After three years of relative calm wherein prices moved less than three percent year-on-year, the sudden drop this year came as a surprise to many.

In June this year, the oil prices were $115 a barrel. It came down to $100 a barrel by September and in October plunged to $84 a barrel, breaching the psychological $100 mark for the first time in years.

So, what is causing this sudden drop in prices after years of stability?

Normally, prices fall when supply is more than the demand. There has been an increase in oil production mainly in Libya and the US. This led to a drop in prices especially after Saudi Arabia surprised everyone by not curbing production to keep the prices stable. The kingdom, which traditionally has curtailed production to keep up the prices, decided to hold onto its market share this time around. Its action stems from bitter past experience. The kingdom had cut production from 10 million barrels per day to 2.5 million barrels per day between 1980 and 1986 when prices dropped. However, despite this the price failed to stabilise as other countries continued to pump oil above their quota. As a result, Saudi Arabia lost its market share, which in turn left the country in deep deficit for many years to come.

The International Energy Agency cut 2015 oil demand estimate by 3,00,000 bpd. The agency also said that for the next few quarters supply of oil, fuelled by US shale gas fracking, will continue to exceed demand.

Robert McNally, an international energy market consultant and Michael A Levi, a David M Rubenstein senior fellow for energy and environment at the council on foreign relations, in their report titled ‘Vindicating Volatility’ said that many shale oil companies in the US do not know how far the prices have to fall to start reducing oil supply substantially. Hence, it is unlikely that there will be shortage of supply of oil soon.

Will the US replace OPEC nations in dictating oil prices?

Deutsche Bank’s commodity analysts say that the next stage in oil price correction will be how the Middle Eastern producers and the US shale oil sector respond to falling prices.

The 12-member OPEC nations have for the past 40 years largely controlled the oil prices. Even today, they own 60% of world’s oil reserves and 30% supply. But analysts say the equation is fast changing, all thanks to the US. The US discovery of shale gas and oil has dramatically shifted the balance of power. The OPEC nations no longer dictate the price of oil, evident from the fact that despite continual dip, they have been able to do little to stabilise it.

Also, the demand for oil has been slow. China’s economy has slowed and so has its demand for oil. Japan, Germany and Britain are increasingly moving towards natural gas.

Many analysts say that there will soon be a world without OPEC with some categorically saying that it would not last more than 50 years with the end coming as soon as within 10 years.

The US has already overtaken Saudi Arabia and Russia to become the world’s biggest producer of oil and natural gas liquids. In crude oil alone, it could become the world’s biggest producer by the end of the decade. However, many believe that it will be difficult for the US to overtake OPEC, which comprises 12-member countries.

Also, one must remember that the international impact of the US oil boom has been constrained by the country’s restrictions on crude oil exports. However, this could change as Barack Obama is mulling lifting the restrictions on crude exports imposed in the 1970s, a move that could put pressure on OPEC.

Although by some measures (with the inclusion of natural gas liquids), US production has already overtaken Russia and Saudi Arabia, comparisons to these countries or to OPEC miss a crucial point. “The US still imports 7 million barrels per day of crude oil, and despite the growth of shale production that figure is not expected to shrink to zero, especially if the government were to allow large-scale exports,” says Geoffrey Styles from GSW Strategy, an energy and strategy consultancy.

Turning to OPEC, says an expert who did not wish to be named, there is no reason to believe that OPEC will cease to exist. “The question is how much influence OPEC will have. This depends, in part, on their market share, which is still significant. It also depends on whether the organisation can exert control over members’ production and pricing decisions. Historically, OPEC’s track record has been mixed; there is a lot of internal indiscipline. But, while that may limit the organisation’s influence, it doesn’t signal its likely demise,” remarks the expert.

Winners and losers

For economies who continue to be heavy importer of oil, like China and India, a further dip in prices is likely to be welcomed. But if the benchmark price continues to hover around or fall below USD80/bbl, it would put long term pressure on the budgetary positions of Gulf states.

Though Saudi Arabia, thanks to its huge cash reserves, is likely to sail through the turmoil, it is Russia, Venezuela and Nigeria that will face the impact of sliding oil prices. Plummeting oil prices will strike a significant blow to Russia’s economy and could send it to recession. The situation is no different for Venezuela and Iran where they are eating into their currency reserves. The Russian finance minister said the country is losing up to $140bn (£90bn) a year because of a combination of plunging oil prices and Western sanctions over the Ukraine conflict.

To deal with the situation, Venezuela and Ecuador have called for a cut in output. Even Iran has hinted at a need to slow down production. However, so far Saudi Arabia has rejected such calls unless there is a guaranteed market share

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