Iran Moving Full Steam Ahead Redeveloping Their Oil Production

Oil prices will be in focus this week as traders prepare for the annual OPEC meeting. It was one year ago this week that OPEC launched their campaign to hold onto market share by increasing production quotas to push oil prices too low for US shale producers to stay in the market. WTI crude oil is trading at 41.79 back to the middle of its trading range after soaring last week on geopolitical turmoil as well as comments from Saudi Arabia that for a minute gave speculators hopes that the world’s largest producer would cut production.  Not much after the original comments, the Saudi’s made this contingent on non-OPEC members as well as OPEC members cutting production.

Brent crude dipped on Monday as traders remained cautious ahead of an OPEC meeting later this week and as a widely expected U.S. interest rate hike strengthened the dollar. Oil prices are heading for declines of as much as 10 percent this month, with a supply glut showing no signs of easing and a firmer U.S. dollar making greenback-denominated contracts more expensive for holders of other currencies. Brent oil is trading at 44.76

Most analysts do not expect OPEC to cut production at an important policy meeting on Dec.4, they are mindful that Saudi Arabia is inching towards the idea of working on price support measures with other oil producers. OPEC and Russia could make “some sort of coordinated attempt to reduce production”, said Jonathan Barratt, chief investment officer at Sydney’s Ayers Alliance.

“The glut continues, but I do feel that it could be reversed quite quickly given the change in interest rates in the United States, which would indicate more demand.” But OPEC officials have called into question an upbeat forecast from the group’s researchers, with some skeptical there will be a quick easing of the supply glut in 2016.

Iraq has announced its intention to turn up production, while Russia pumps record quantities. The return of Iran to the marketplace will keep the global glut of oil climbing through 2016. Iran is expected to move back into the global markets in January 2016 with the vote on the Nuclear agreement scheduled in early December at the UN but the necessary backing has been accomplished.   Iran unveiled a new model of oil contracts Saturday aimed at attracting foreign investment once sanctions are lifted under a landmark nuclear deal reached earlier this year, and said U.S. companies would be welcome to participate.

The new Iran Petroleum Contract replaces a previous buyback model, in which contractors paid to develop and operate an oil field before turning it over to Iranian authorities. Iran has sweetened the terms, hoping to bring in $30 billion in new investment. The new contracts last 15-20 years and allow for the full recovery of costs. The older contracts were shorter term, and investors complained of heavy risks and suffering losses.

Investors who produced more than planned amounts received no compensation for the additional barrels. But under the new model, the more they produce, the more they will earn. Foreign investors will also have an option to extend contracts an additional five years, up to 25 years.