Iran will not freeze production below 4 MMBOP – Iranian Oil Minister

Crude oil prices took a steep fall this morning as hopes that OPEC might curb production in order to reach a $50 per barrel price floor were diminished by news that Iran plans to continue increasing production. U.S. benchmark WTI fell as low as $36.73 today, while international benchmark Brent crude oil fell to $38.84 per barrel. Both crudes made gains by market close.

Prices began to climb last week as rumors swirled that OPEC would help push prices higher after initiating a production freeze with several non-OPEC members, including Russia. When the production freeze was announced, Iran said it supported the move, but had no intention of joining.

A press release from Iranian news agency Shana this morning added to the bearish sentiment Iran is adding to the market as it reported Iran plans to reach 4 MMBOPD of production before joining the production freeze.

“As long as Iran’s oil production does not reach 4 million barrels a day, it is better that we are not disturbed,” said Iranian Oil Minister Bijan Zangeneh. “We will accompany [the freeze] afterwards.”

Iranian crude oil exports are expected to reach 2 MMBOPD by March 19, the end of the current Iranian month, according to Zangeneh.

Adding to the retreat in oil prices was a stronger U.S. dollar, which curbed investor appetite for dollar-denominated commodities, according to Bloomberg.

Oil prices still supported by other factors

“The market is set for a bit of a pullback after rallying into over-bought territory,” said Bob Yawger, director of the futures division at Mizuho Securities. Despite the sharp drop following the announcement of Iran’s continued production, the IEA believes oil prices have likely bottomed out.

In its March Oil Market Report, the IEA’s preliminary numbers showed declining production from both OPEC and non-OPEC sources. The IEA believes supplies declined 180 MBOPD in February to 96.5 MMBOPD.

Modest demand growth of 1.2 MMBOPD in 2016 will leave a supply surplus of 1.9 MMBOPD in the first quarter of the year, and 1.5 MMBOPD in second quarter, but the gap will then narrow to 0.2 MMBOPD in the third and fourth quarters of the year. This shrinking supply overhang should continue to support prices, but means a more substantial price recovery is less likely before 2017.

Saudi Arabia, OPEC’s largest producer, also appears to be sticking to the production freeze, as well, further supporting prices. Output from Saudi Arabia stayed relatively unchanged in February at 10.22 MMBOPD, an industry source told Reuters.

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