Iran oil minister denies heavy oil discounting as market share battle looms

Bijan Namdar Zangeneh told the government’s Islamic Republic News Agency (Irna) that the country would offer only 'regular and customary' discounts to prospective customers.

Bijan Namdar Zangeneh, Iran’s oil minister, speaks in Vienna, Austria, on Friday, June 5, 2015. Lisi Niesner / Bloomberg

Iran’s oil minister yesterday denied his country is offering steep discounts to boost exports amid an intensifying battle for Asian market share.

As Iran prepares for the lifting of international sanctions related to its nuclear programme next year, Bijan Namdar Zangeneh, the oil minister, told the government’s Islamic Republic News Agency (Irna) that the country would offer only “regular and customary” discounts to prospective customers.

He was responding to reports that Iran was discussing deep discounts with prospective buyers as it plans to increase exports from 1 million barrels per day – the level at which they have been capped since sanctions were put in place in 2011.

Reuters last week quoted unnamed Indian refinery buyers saying that the National Iranian Oil Company (NIOC) international affairs director, S M Ghamsari, had been canvassing on a recent visit for their input about what prices would be competitive. This “rare move” was in contrast to the usual NIOC practice of offering its own terms to buyers on a take-it-or-leave-it basis, according to the report.

Iran reached a deal with the US and other major powers this year that would lift sanctions in return for it severely limiting its nuclear programme.

Early this month, the International Atomic Energy Agency’s director general, Yukiya Amano, said his agency could verify Iran’s compliance with the terms of the deal – which would trigger a lifting of sanctions – as early as the end of next month.

Mr Zangeneh on Sunday reiterated Iran’s intention to add 500,000 bpd to production as soon as sanctions are lifted and another 500,000 barrels per day (bpd) “after a short while”, according to Irna.

Despite Iran’s ambitious claims, it is not clear how fast or by how much the country could ramp up its production and there is a wide range of estimates from analysts.

With a cap of 1 million bpd on exports, Iran’s production has ranged between 2.5 million bpd and 2.8 million bdp in recent years, below pre-sanctions levels of about 4.5 million bpd.

“Iran has set itself a target of 4 million bpd by the end of 2016 and at least 5.7 million bpd by 2018, but this looks overly ambitious given the sector’s lack of technical attention over recent years,” said Elif Kutsal at McKinsey Energy Insights. “We expect Iran to reach the four million bpd output target with a delay, most likely in 2017-2018.”

Still, the oil market is expected to remain oversupplied through next year and this will be exacerbated unless Iran’s fellow Opec members – particularly Saudi Arabia – can agree to make room for its extra output.

Saudi Arabia has shown little sign of relenting on the policy it has been pursuing for more than a year of pumping at record levels to capture market share and force others to make cuts to bring the market into balance. At the start of this month, for example, it increased its own price discounts for US and Asian oil buyers just ahead of the biannual Opec meeting.

Others in the region typically follow Saudi Arabia’s lead on price and the UAE is particularly affected by Asian discounting as it sells almost all of its oil exports there.

Iran’s rhetoric in response to Saudi Arabia’s policy has been consistently defiant.

“Iran will win back its global market quota,” Rokneddin Javadi, NIOC’s chief executive, told Iran’s Shana (Petroenergy Information Network) on Saturday. “Lack of cooperation by Opec members can lead to further decline in global oil prices.” Shana reported that Iranian heavy crude sold in the week to December 18 at below US$30 a barrel for the first time in 20 years.