What will happen if Iran increase its oil productions?

Iran’s oil fields such as Ahwaz, Gachsaran, Bibi Hakime, and Darkhowin whick are mostly located in the skirts of Zagros Mountain. Sanctions lead to under capacity production of these fields, as Bijan Zanganeh said: Immediately after lifting sanctions, it’s our right to return to the level of production we historically had, Supplying more oil to the market from Iran side would make the conditions more challenging, Reasons to make these challenges are as follows:

  1. Now (before Iran production increases) the supply of oil is more than the demand, seen in the below chart. According to the International Energy Agency (IEA), global oil production in the first half of 2015 averaged 95.7$million barrels a day, while average daily consumption came in at only 93.8$million barrels. The difference of almost 2$million barrels a day _equal to the daily consumption of France_ it is anticipated that Iran will store the extra oil in the giant vessels onshore. The result of Iran returns will be the price war.
    What will happen if Iran increase its oil productions2
  2. Main players’ budget in oil market (Saudi Arabia and Russia) is mostly depend on oil and is restricted due to the decline of prices, so they won’t decrease their production and also want to persuade shale producers to leave market.
  3. Because of Saudi Arabia conflicts with Iran, it negotiate with customers and offer more discounts to maintain the market share to prohibit Iran, regaining its past market share.

 

The conclusion of “a”, “b” and “c” is oil price reduction so the producers with high cost of production cannot compete with others. Shale oil products have the high cost of production, no one know the future, we should be patient and see that, does shale can resist or will exit the market? Estimated numbers of production in November and December 2015 shows the decline of production in U.S oil fields.
What will happen if Iran increase its oil productions3

Total cost of oil wells is categorized in fixed and variable costs, because fixed cost (cost of drilling) is sunk so the only parameter to decide to continue or stop production is the variable costs which is about $20-30 (Fortune magazine). So shale producers can continue till oil prices touch the $20-30 range, with having this in mind, we can say the price war can lead to price decrease to this range, after that by exiting shale producers from market, oil price will experience increase.