Any Iran deal a 'speed bump' in structurally bullish market - GS

Quantum Commodity Intelligence - Goldman Sachs has maintained its upbeat outlook on oil prices, describing any resolution on Iranian nuclear negotiations as a "speed bump" in an otherwise structurally bullish market.

The resumption of the JCPOA talks has increased the likelihood of a deal this year, said the bank in a client note released late Tuesday, with an associated ramp-up in crude exports expected shortly after that, although the pricing impact would be relatively modest.

"We estimate that a deal with Iran next month that would allow for a Q3 22 return of Iranian volumes to the market would represent up to $7/b downside risk relative to our above-consensus $105/b 2023 Brent forecast, although with still $20/bbl upside to Dec-23 market forwards," said Goldman.

However, the bank said it remains cautious that a deal can be reached soon, given a lack of direct talks between the US and Iran and unresolved key areas of disagreement.

Deadline

Goldman said recent news headlines of progress towards a deal have not led to a steep decline in prices, "indicating either complacency; that a deal is already built into consensus expectations; or that the exceptional strength in prompt and cash markets is overwhelming."

According to the report, the next few weeks will likely be key to a potential deal with the US setting a mid-February deadline, noting the State of the Union address on 1 March as a potential cut-off point.

"We remain prudent and refrain from revising our expectations, however, which remain for a 50% probability of a deal in Dec-22 (ramping up exports in early 2023) and a 50% probability of no deal through the end of 2023.

Goldman said in the event of an announcement of a deal in March, it expects a mostly front-loaded increase of Iranian production starting in Q3 22 of 500,0000 through that quarter and reaching 1 million bpd by early summer 2023.

In addition, the bank sees a discharge of 50 million barrels of excess crude storage over six months, also front-loaded.