Iran Oil Exports Can Be Cut Gradually, U.S. Says

(Bloomberg) -- The U.S. Energy Department indicated that sanctions on Iran may leave room for buyers of the Islamic Republic’s oil to cut back gradually.

"These situations are going to be evaluated on a case-by-case basis," Deputy Energy Secretary Dan Brouillette said in an interview in Paris. "So I would expect that there are some accommodations made for transition times.” His remarks run counter to statements made by the State Department earlier this week saying U.S. allies would be expected to stop their Iranian oil purchases by November.

Oil prices slipped initially after Brouillette struck a softer stance, saying he expected sanctions would be eased in. Still, he acknowledged that his agency doesn’t enforce sanctions and that the Treasury department will ultimate decide how stringently they’re enforced. Brent prices gained 67 cents Friday morning, trading at $78.42 a barrel.

No Worries

U.S. Energy Chief Rick Perry, meantime, offered assurances that the market would be able to withstand any supply losses caused by U.S. sanctions, even as turmoil in Venezuela and Libya curtail production in those countries.

“We look at this as an opportunity for the OPEC members to fill the gap,” Perry said at a press conference at the World Gas Conference in Washington on Thursday. "I am quite comfortable that the world’s producers of crude are going to be able to meet that demand that’s out there." He suggested that Saudi Arabia would be able to pump 11 million barrels a day "going forward."

U.S. Secretary of State Mike Pompeo met with Saudi Arabia’s Energy Minister Khalid Al-Falih in Washington on Thursday where they discussed energy security "and other issues of mutual concern", according to the U.S. State Department.

Saudi Arabia already is said to be planning to boost output next month, to about 10.8 million barrels a day, in order to cool prices. That follows a decision by the oil cartel and its allies last week to raise production by 1 million barrels.

Strategic Reserves

It’s unclear whether those increases will be sufficient to balance the market if Iranian oil imports decline steeply or if future outages take barrels off the market. With supply disruptions from Venezuela to Libya, Perry acknowledged there’ll be some pressure on supply during the key summer driving season, and price spikes from time to time.

JBC Energy said in an emailed note Friday that if U.S. sanctions succeed in driving Iranian oil exports to near zero, crude prices could rise above $100 a barrel.

International Energy Agency Executive Director Fatih Birol said in an interview in Paris that there is "absolutely no" plan to release strategic petroleum reserves in IEA member countries, adding that stockpiles must be used only when there is a physical shortage, rather than to have an impact on prices.

Perry also ruled out tapping the U.S. emergency oil stockpile in the event of any price shocks arising from the loss of Iran’s oil exports.

“I would not recommend and I don’t think the president would either,” he told reporters. “You are going to see a settling down of the market."

Birol also said that "very strong demand growth” was supporting higher crude prices.

A demand increase of 1.4 million barrels a day in 2018 -- combined with supply outages in Venezuela and Libya -- was the reason Brent prices have risen by over $11 a barrel since the start of the year, Birol said.

"Some of the producers are taking steps towards stabilizing the market, which are welcome,” Birol said. "In the next five years, about 40 percent of the growth of oil will come from the United States. U.S. production will definitely contribute positively to the market."

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