By Fatma Babayeva
Iran keeps increasing its oil production since the international sanctions imposed on the country were lifted in January 2016.
U.S. JP Morgan bank has reviewed its assumption on Iranian capacity and lifted output forecast from 3.5 million barrels per day to 3.9 million barrels per day by the third quarter of 2016.
Since the beginning of the year, Iranian output has surged ahead of market consensus expectations with April output estimated at 3.5 million barrels per day, stated the bank in its weekly Oil Market report.
Analysts of the bank said that the surge in Iran’s oil output has been achieved much more rapidly than JP Morgan forecasted before. The current output of the Islamic State is close to levels that the bank forecasted for the country to reach at the end of the year.
Possibly, the steep increase in production may in part be a function of condensate volumes being blended into the crude streams, the analysts of the bank noted. Furthermore, the increased gas production - following the start-up of several phases of the South Pars gas field - has increased the rate of gas injection into key oil producing assets, for instance the Agha Jari field.
The bank’s report referred to the recent reports by the National Iranian Oil Company (NIOC) indicating that gas injection at this field has increased to around 50,000 barrels of oil equivalent per day.
The ability to sustain the rate of gas injection in domestic fields will be tested in the coming years, as Iranian domestic demand continues to grow and incremental gas supplies rely largely on completion of additional phases of the South Pars gas field, the bank said.
Given the updated capacity assessment, analysts of the bank emphasized that it is likely that Iranian production will make further gains in the coming weeks and months. Probably, the reported crude production of Iran will reach 4 million barrels per day which will be the highest level of output since 2008.
Iran's oil production and export stood respectively at 3.56 million billion per barrel and 2 million billion per barrel in April, according to the International Energy Agency's latest report.
JP Morgan bank also noted in its weekly report that OPEC's early June meeting looks unlikely to generate a deal that eluded major oil producers in Doha to freeze their oil output levels last month.
Analysts of the bank believe that the prospects of Iran agreeing to participate in a deal to cap production would become more compelling for them than currently, if the country reaches oil production level of 4 million barrels per day by that period.
However, the recent developments in Saudi Arabia, following the replacement of Ali Al Naimi with Khalid Al Falih as Minister for Energy, Industry and Mineral Resources, raises a question over whether these production gains will prompt a renewed focus on market share between the Middle East Gulf producers, the report said.
The analysts mentioned that some reports already highlight that Saudi Arabia is likely to increase production in coming months.
The last meeting of top oil producers in Doha held in Qatari capital on April 17 ended without any consensus agreement on freezing oil production.
The talks on oil output freeze collapsed after Saudi Arabia surprised the participants of the meeting by reasserting its demand that Iran should join oil freezing plan as well.
Recently, U.S. president Barack Obama signed amendments to the law on national security on May 19. In accordance with the amendments, the U.S. will no longer prevent the sale of Iranian oil. The step was taken after the Atomic Energy Agency (IAEA) confirmed that Iran has carried out key steps associated with its nuclear program.
Currently, foreign energy companies hold intensive negotiations to get a foothold in Iranian oil and gas sector.
Iran already concluded contracts with several European and Asian energy companies, and the implementation of those contracts is expected to take place in near future.
The country strives to bring its oil exports to the pre-sanctions level (around 2.2 million barrels per day) by the end of this summer in the longest.
BP’s statistical review of world energy 2015 reports that Iran holds 9.3 percent of the world’s total proven oil reserves.
Before sanctions, Iran was exporting 2.2 million barrels per day of crude oil.
Fatma Babayeva is AzerNews’ staff journalist, follow her on Twitter: @Fatma_Babayeva
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