By: Mohammad Hossein Azari
TEHRAN, Jan. 15 (MNA) – On the eve of Donald Trump’s presidency, potential fluctuations in oil prices reveal two sides to coin of Tehran-Washington oil relations one depicting support of higher crude prices by both countries.
‘Energy Independence’ remains as the main oil policy pursued by America’s newly-elected president, a policy which nowadays is also advocated by Russia, as the largest non-OPEC crude producer, along with Saudi Arabia, Iraq and Iran.
Mathematically speaking, the name of Donald Trump must be placed on the list of expensive oil advocates but the question remains whether the congruity in oil policies of Tehran and Washington should be deemed as a threat or an opportunity.
Despite the drastic fall in oil prices over the past three years, when the market even experienced lower-than-thirty-dollar levels per barrel in prices, crude output rates not only did not decline, but rather they increased and production costs of Shale and other unconventional oil types decreased dramatically.
Currently, a great portion of American Shale oil, which is known as a menace to the produced oil by OPEC members, is situated in five main regions including Macon, Eagle Ford, New Brara, Permian Delaware as well as Permian Midland.
The noteworthy point is that the latest estimations by credible international institutions indicate that production costs of shale oil in the US have fallen below 40 dollars per barrel on average as the figure for Macon stands at about 31 dollars.
In the past three years, the sharp decline in crude prices not only did not add to shale output costs in the US but also led to a boost in performance efficiency in various stages of drilling and completion which in turn had brought about a higher recovery factor.
Deciphering Tehran-Washington ties
Lower crude production costs in the US marks a forewarning for Iran as well as other OPEC and non-OPEC producers and Americans will subsequently need higher oil prices given Trump’s policy of energy independence.
In case the rise in global prices becomes realized as a result of agreement among OPEC and non-OPEC states during Trump’s presidency, interests of all producers will be supplied and, on the contrary, if prices plunge, Americans will definitely seek to create a psychological shock in the oil market by imposing sanctions against some of the world’s producers and exporters like Iran and Russia in which case the other side of coin of America’s filthy policies will be unveiled.
Parallel with ongoing developments and the verge of Trump taking the office, the US Congress has issued licenses to American oil companies to release eight million barrels of trade oil stored in areas like Texas and Louisiana.
Iran’s former governor at OPEC, Seyed Mohammad Ali Khatibi relatedly said that the Congress act was more of an economic than a political nature since America was after a boost in crude prices in the market.
The official, while stating that US had not joint the oil freeze deal by OPEC and no-OPEC members though Americans had no plans to maintain low oil prices, asserted “in order to obtain its goals in oil and energy sector, the US is in need of higher crude prices.
Khatibi stressed that Washington had significantly decreased shale production costs in the past three years adding that the figure had dropped from the previous 60 or 80 dollars to the current 35 to 40 dollars per barrel.
The oil market analyst recalled that falling crude prices would undoubtedly come as a loss to Americans as well as that US was in favor average to high prices; “with the rise in oil prices to over $50, America will be able to continue investment in shale reserves.
He underlined that stability in crude prices at higher levels could help develop the American oil industry and increase shale oil production; “accordingly, selling of eight million barrels of oil stored in American oil reserves marks a purely commercial policy.”
Trump backs high crude prices
In response to a question whether Donald Trump’s policy of energy independence and the soar in shale output aimed to reduce America’s oil dependence, NIOC’s former governor at OPEC explained that crude oil consumption in the US stood at an average of 18 to 19 million barrels per day.
“The average volume of oil production in America has been estimated to be lower than 10 million barrels per day,” highlighted the official stressing that Washington would not be able to fill the gap between supply and demand in the short run.
He further underlined that America’s oil output would never go up by mere slogans adding “American oil firms need to make new investments which in turn require stability in crude prices at higher levels.”
The analyst reiterated that at lower prices, Americans would have no inclination towards increased production of oil, shale oil in particular, saying “US’ Energy Information Administration has predicted that Washington’s oil production in 2017 will rise by about 110 thousand barrels per day.”
“With a 100-thousand increase, Americans will never be able to reach energy independence in the short run,” noted the official commenting that “US Republicans have traditionally pursued the policy of increasing oil prices and the figures have enjoyed higher levels whenever Republicans were in the office.”
Khatibi said American firms would favor oil prices over 60 dollars a regards making new investments while lower price figures would fall into disfavor with them.
He went on to note that a boost in activities of American companies during Trump’s presidency could lead to an uplift in the country’s energy demands; “the upsurge in demands will take place not only in the oil market but also in other sectors like coal, natural gas and petroleum products,” he concluded.