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The shortfall in Iranian crude oil exports brought on by sanctions from the Western world against Iranian oil has “substantially exceeds” the Goldman Sachs energy team’s expectations.Commodities analysts David Greely And Stefan Wieler write in a note to clients that weakness in Iranian crude exports could continue throughout the second half of the year, restraining supply and thus keeping prices elevated.
However, Goldman sees South Sudan as an unlikely hero with the potential to make up for the shortfall in world oil markets. From the note:
A potential offset to the weaker-than-expected Iranian exports could be the return of crude oil supplies from South Sudan. A dispute between Sudan and South Sudan led to the shut-in of around 400 thousand b/d of supplies earlier this year. Last week, US Secretary of State Hillary Clinton met South Sudan’s President Salva Kiir in Juba, urging both South Sudan and Sudan to settle the dispute. Just hours after this meeting, South Sudan and Sudan announced that they reached an agreement over oil transit fees (South Sudan is landlocked and its oil if must travel in pipelines running through Sudan in order to reach the world market), which could be the first step to end the dispute that resulted in the shut-in of all oil production from South Sudan and about half of Sudan’s output since late January this year.
Greely and Wieler caution that there is still much more work to be done in Sudan, though, before they can step up in the world oil market:
Despite the recent progress towards ending the dispute, the timetable of the return of crude oil from South Sudan to the global market is still very much unclear at this point as it will depend on much more than just agreeing on a transit tariff. The parties will resume talks in August 26 according to a report from the Sudanese state news agency. Should the oil from the Sudan return to the market, it would help offset the greater-than- expected impact of the EU insurance sanctions on world oil supplies.
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